NLRB General Counsel: Noncompetes Unlawful Employment Practice

Advocacy News – June 1, 2023

On May 30, the National Labor Relations Board’s (NLRB) General Counsel announced via memo that noncompete agreements violate the National Labor Relations Act and are therefore an unlawful employment practice.

The announcement, which applies to nonunionized and unionized employers, may result in unfair labor practice charges for any employer that uses noncompetes. However, it seems the guidance would not impact a manager’s or supervisor’s noncompete since the National Labor Relations Act (NLRA) applies only to nonmanagerial, nonsupervisory staff. The MI Chamber is seeking further legal clarity on this matter.

The General Counsel’s memo explains that overbroad noncompete agreements are unlawful because they “chill” employees from exercising their rights under Section 7 of the NLRA, which protects employees’ rights to take collective action to improve their working conditions.

“This denial of access to employment opportunities interferes with workers engaging in Section 7 activity in a number of ways,” NLRB General Counsel Jennifer Abruzzo said in the memo. “[F]or example, workers know that they will have greater difficulty replacing their lost income if they are discharged for exercising their statutory rights to organize and act together to improve working conditions; their bargaining power is undermined in the context of lockouts, strikes and other labor disputes; and their social ties and solidarity leading to improvements in working conditions at workplaces are lost as they scatter to the four winds.”

The General Counsel’s memo was issued to all Regional Directors and field staff — but it is not yet official policy. The US Chamber is warning that employers should expect the following:

1. The General Counsel will look for opportunities to file complaints against employers that use noncompetes. Employers at that point would need to decide if they want to settle those cases or contest them through the NLRB’s adjudicatory process. If the NLRB has not yet validated the General Counsel’s theory, administrative law judges are unlikely to uphold such a complaint.
2. The NLRB itself will need to decide if it wishes to take up the General Counsel’s theory. The General Counsel has already asked the NLRB to do so in a case called Stericycle.
3. If the NLRB does in fact approve this theory and decide to make noncompetes a violation of labor law, it will effectively become national policy.
4. If the NLRB rules against an employer in a case involving noncompetes, the employer can appeal that ruling to federal court.

The General Counsel’s memo was issued as the Federal Trade Commission (FTC) continues its regulatory efforts to effectively ban all noncompete agreements, which the MI Chamber opposes.

The MI Chamber will continue to monitor this situation and share legal analyses when they become available. We would advise that employers using noncompetes check with legal counsel regarding how to proceed. Please contact Wendy Block with questions at wblock@michamber.com.