Is the Sun Setting on Non-Compete Agreements? The NLRB General Counsel Joins the Chorus

In a memo released on May 30, National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo dealt another blow to noncompete agreements. With the newly passed Minnesota ban set to go into effect on July 1st, and the pending FTC rule which also seeks to ban non-competes, this move by the General Counsel adds to what is a growing push from government authorities to move away from these types of agreements.

In her memo, Abruzzo says that noncompete agreements interfere with employees’ rights under Section 7 of the National Labor Relations Act (NLRA). Section 7 of the NLRA guarantees employees “the right to self-organize, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” The NLRA makes it an unfair labor practice to interfere, restrain, or coerce employees in the exercise of their rights. Abruzzo says in her memo that, in essence, a noncompete limits an employee’s ability to find work elsewhere, therefore diminishing their bargaining power for the purpose of concerted action.

It is the job of the General Counsel to prosecute violations of the NLRA, and this statement from Abruzzo serves as a warning to employers that they may face an unfair labor practice charge if they require employees to sign non-competes.  However, Abruzzo’s memo is only a statement of her interpretation of the NLRA.  Until the Labor Board actually rules on a charge or issues an administrative rule adopting her interpretation of the NLRA, the statements in her memo are not binding descriptions of the law. It is important to note that the NLRA applies only to non-managerial, non-supervisory staff, so any non-compete agreements with managers and supervisors would not be impacted by this.

As a reminder, in January 2023, the Federal Trade Commission (FTC) proposed a rule along the same lines that would rest on its authority under Section 5 of the Federal Trade Commission Act. The public comment period has closed and the FTC is not expected to vote on the final version of its proposed rule until early 2024.

And do not forget the recently passed non-compete ban in Minnesota that goes into effect on July 1, 2023, and which we have previously reported on.  Notably, Minnesota’s non-compete ban does not apply to customer non-solicitation agreements or restrictions that protect a company’s confidential or trade secret information.  Nor does it prohibit a non-compete when executed in connection with the sale of the business.  Also, the new Minnesota law applies only to non-compete agreements entered into on or after July 1, 2023, leaving alone those that already exist. Abruzzo’s interpretation is much broader in that it seeks to ban all non-compete agreements and existing agreements would not be grandfathered in.

Bottom Line

The combination of the new Minnesota non-compete ban, the pending FTC rule, and this new memo from the NLRB, make it clear that legislatures and governmental agencies are committed to narrowing the use of non-compete agreements across the country and in Minnesota. At least for now, Minnesota employers can still protect their legitimate business interests via customer non-solicitation, confidentiality, and trade secret agreements, and non-competes remain enforceable as part of the sale of a business.

We will continue to monitor this situation as it develops.