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Labor & Employment Alert: General Counsel for NLRB Gives Fair Warning That She Is Looking for Opportunities to Challenge Noncompete Agreements as Unfair Labor Practices Under Labor Law
By Stephen P. Bond on June 2, 2023
President Biden assumed office in January 2021; and, soon after, publicly announced his Administration’s opposition to noncompete agreements for employees. He issued an Executive Order, directing government agencies to exercise their powers to ban or limit noncompetes.
Earlier this year, the Federal Trade Commission (FTC) announced its intention to promulgate just such a rule, on the basic premise that they fundamentally reduce competition. Since that announcement, the FTC has solicited public comments on the terms being proposed, and that feedback is now being reviewed. There is no date set; but, it is likely that sometime this summer, the FTC will announce the final format it proposes for the regulations it will finally decide upon. There seems little likelihood that the Commission will not proceed with a ban of some kind; but, their initial announcement left some room for believing that there may ultimately be exceptions allowed, such as in the case of a sale of a business, or, perhaps, for highly-compensated individuals. We haven’t strongly recommended that clients abandon their non-competes for the time being, not only because the exact final parameters remain to be seen, but also because a serious court challenge to whatever the FTC announces seems inevitable.
But the National Labor Relations Board (NLRB) has also taken the President’s Executive Order to heart. For one thing, in a decision by the Board itself, earlier this year, the NLRB condemned even offering provisions in severance agreements which unduly restrict employees with “confidentiality” and “non-disparagement” clauses. The labor relations concern they seek to protect is that employees (even non-union employees) need to be able to share among themselves, or with their target audiences, their complaints about the workplace; and the threats of enforcing such clauses may prevent them from speaking up. While this decision does reflect the official position of the Board, for now, it is subject to review at the United States Court of Appeals in Cincinnati – so, the outcome is still somewhat unclear. Further, while the Board’s decision would apply even in non-union settings, it would only be applicable to individuals who are eligible to join a union – which is to say, even if that decision continues to stand, it would not extend to management employees (the individuals for whom a noncompete is likely more important to a business).
But, now, on Tuesday May 30th, the “General Counsel” for the Board (the individual who sets policy on what cases to prosecute before the Board) has publicly announced her view that, in general, noncompetes are illegal under labor law principles. Essentially, her argument is that a noncompete, or any analogous agreement (e.g., confidentiality agreements) which would prevent an employee from taking another job, deprive that employee of the ability to threaten their employer with quitting and going elsewhere. Further, groups of employees may feel they cannot band together and threaten to all leave if they are all subject to a noncompete. Using that logic, the General Counsel argues that these agreements violate labor law – the point being that, she has put everyone on notice that, if such a case comes to her attention, she intends to prosecute it before the Board, in the hope of convincing the Board to “expand” the scope of what is considered a violation of labor law.
What is significant here is that, while the FTC’s intention is not yet final, and will likely take many months to reach finality via court, the General Counsel’s view is that, as of now, if an incident should be brought to the attention of the NLRB that raises this issue, she intends to start prosecuting the employer now.
Here again, the scope of what she can prosecute is limited by whether the employees involved would be eligible to join a union. So, noncompetes pertaining to members of management should be outside her purview. But, noncompetes in place today for rank-and-file personnel would be fair game in her view.
Of course, we don’t know whether the Board itself will follow the General Counsel down this pathway. But, if you are maintaining these covenants for non-management personnel, you now know you may have a problem.
Earlier this year, the Federal Trade Commission (FTC) announced its intention to promulgate just such a rule, on the basic premise that they fundamentally reduce competition. Since that announcement, the FTC has solicited public comments on the terms being proposed, and that feedback is now being reviewed. There is no date set; but, it is likely that sometime this summer, the FTC will announce the final format it proposes for the regulations it will finally decide upon. There seems little likelihood that the Commission will not proceed with a ban of some kind; but, their initial announcement left some room for believing that there may ultimately be exceptions allowed, such as in the case of a sale of a business, or, perhaps, for highly-compensated individuals. We haven’t strongly recommended that clients abandon their non-competes for the time being, not only because the exact final parameters remain to be seen, but also because a serious court challenge to whatever the FTC announces seems inevitable.
But the National Labor Relations Board (NLRB) has also taken the President’s Executive Order to heart. For one thing, in a decision by the Board itself, earlier this year, the NLRB condemned even offering provisions in severance agreements which unduly restrict employees with “confidentiality” and “non-disparagement” clauses. The labor relations concern they seek to protect is that employees (even non-union employees) need to be able to share among themselves, or with their target audiences, their complaints about the workplace; and the threats of enforcing such clauses may prevent them from speaking up. While this decision does reflect the official position of the Board, for now, it is subject to review at the United States Court of Appeals in Cincinnati – so, the outcome is still somewhat unclear. Further, while the Board’s decision would apply even in non-union settings, it would only be applicable to individuals who are eligible to join a union – which is to say, even if that decision continues to stand, it would not extend to management employees (the individuals for whom a noncompete is likely more important to a business).
But, now, on Tuesday May 30th, the “General Counsel” for the Board (the individual who sets policy on what cases to prosecute before the Board) has publicly announced her view that, in general, noncompetes are illegal under labor law principles. Essentially, her argument is that a noncompete, or any analogous agreement (e.g., confidentiality agreements) which would prevent an employee from taking another job, deprive that employee of the ability to threaten their employer with quitting and going elsewhere. Further, groups of employees may feel they cannot band together and threaten to all leave if they are all subject to a noncompete. Using that logic, the General Counsel argues that these agreements violate labor law – the point being that, she has put everyone on notice that, if such a case comes to her attention, she intends to prosecute it before the Board, in the hope of convincing the Board to “expand” the scope of what is considered a violation of labor law.
What is significant here is that, while the FTC’s intention is not yet final, and will likely take many months to reach finality via court, the General Counsel’s view is that, as of now, if an incident should be brought to the attention of the NLRB that raises this issue, she intends to start prosecuting the employer now.
Here again, the scope of what she can prosecute is limited by whether the employees involved would be eligible to join a union. So, noncompetes pertaining to members of management should be outside her purview. But, noncompetes in place today for rank-and-file personnel would be fair game in her view.
Of course, we don’t know whether the Board itself will follow the General Counsel down this pathway. But, if you are maintaining these covenants for non-management personnel, you now know you may have a problem.
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