Restrictive Covenants Under Attack Again: National Labor Relations Board Issues Memo Disfavoring Noncompete Agreements

National Labor Relations Board (NLRB) General Counsel Jennifer A. Abruzzo recently issued a six-pagememoto all NLRB Regional Directors, Officers-in-Charge and Resident Officers highlighting concerns that the use of noncompete agreements in employment contracts may violate federal law in some circumstances.

The NLRB memo underscores that noncompete agreements can limit employees’ mobility and job prospects, thereby potentially stifling competition and restricting the labor market. The memo asserts that such restrictions may violate Section 7 of the National Labor Relations Act (NLRA) by infringing upon employees’ rights to engage in concerted protected activity. The NLRA safeguards employees' rights to organize, bargain collectively, and engage in other concerted activities to improve their working conditions.

While acknowledging the legitimate interests of employers in protecting trade secrets and customer relationships, the NLRB memo highlights the need for a careful balance between those interests and employees’ rights. It suggests that overly broad or unduly restrictive noncompete agreements may be unenforceable under the NLRA. The memo emphasizes that employers must demonstrate a compelling business justification for imposing such restrictions on employees.

While the NLRA applies only to nonsupervisory employees, in light of the NLRB memo and the recent Federal Trade Commission (FTC) proposed rule to ban noncompetes(watch our previous Town Hall on the FTC proposed rule here), all employers should be addressing this issue now. Employers should take a hard look at their noncompetes and other restrictive covenants, see who is bound by them, and – particularly if any nonsupervisors have signed them – consider whether to rescind any agreements. At the same time, employers should consider what other steps may be warranted to protect company information, customer goodwill, and workforce stability.

Employers should consult with experienced human resources professionals and/or labor and employment counsel with any questions regarding employment law issues. For all MEA members, the Hotline is available to provide this assistance. For MEA Essential and Premier members, a Member Legal Services attorney is available for additional consultation.

Amy G. McAndrew, Esquire
Director of Legal and Compliance Services
MidAtlantic Employers' Association



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