What Happened to the NLRB's Move Against Non-Compete Clauses?
The General Counsel is running out of time to establish their illegality.
In May of 2023, the General Counsel (GC) of the National Labor Relations Board (NLRB) released a memo (GC 23-08) indicating that, in her view, most non-compete agreements entered into by non-supervisory workers violate the National Labor Relations Act (NLRA). The NLRB has long held that all sorts of restrictive work rules, both on their face and in their application, violate Section 8(a)(1) of the NLRA, but this was the first time any authority at the agency had attempted to extend this body of law to non-compete rules in this way.
Non-Competes Arguably Violate the NLRA
The GC’s argument is novel but also fairly simple. Under the current Board law governing coercive rules, if the GC can prove “that a challenged rule has a reasonable tendency to chill employees from exercising their Section 7 rights,” then that rule is unlawful unless the employer can prove “that the rule advances a legitimate and substantial business interest and that the employer is unable to advance that interest with a more narrowly tailored rule.”
Section 7 rights include the right to do the following activities:
Concertedly threatening to resign to demand better work conditions.
Actually concertedly resigning to secure better work conditions (Board law on this is ambiguous).
Concertedly seeking or accepting employment with a local competitor.
Soliciting coworkers to go work for a competitor as part of a broader course of protected activity.
Seeking employment at another workplace to engage in protected activity at that workplace (e.g. salting).
A non-compete rule has a reasonable tendency to chill employees from exercising these and other rights because doing so could and often would be interpreted as violating a non-compete rule.
Thus, absent an employer showing that they have some kind of special business interest the requires using them, non-compete rules violate Section 8(a)(1) of the NLRA.
History of the Question
There is one NLRB case where the Board did find that the application of a non-compete rule violated the NLRA. In Liberty Mutual Insurance (1978), an employee was illegally fired and then started a competing enterprise, after which point their employer attempted to enforce a non-compete clause against them. The Board held that, in those circumstances, the enforcement of a non-compete clause violates the NLRA.
The question of whether a non-compete clause, on its face, violates the NLRA was addressed once before in Thermal Tech, a 2012 advice memo. There, the GC concluded that a non-compete clause does not violate the NLRA because it has only an “incidental effect on Section 7 activity.” However, in that memo, the only Section 7 activity the GC contemplated as being chilled by the non-compete clause was union salting (number five in the list above). Had the GC contemplated the much broader range of activities that a non-compete clause can infringe upon, they may have reached a different conclusion.
After Thermal Tech, but before GC 23-08, the current GC quietly pursued her non-compete theory in a case called Berry Green Management. In that case, the GC wrote an advice memo instructing the NLRB region handling the case to pursue the non-compete theory and that region did pursue it in a complaint against the company. But this advice memo has not been released and the case settled before an administrative law judge (ALJ) could issue a decision.
Since GC 23-08, there have been three different advice memos instructing regions not to pursue a complaint against a particular employer’s non-compete clause for various reasons related to the specific clauses at issue in those cases (see Vos Electric, Dental Health Associates of Madison, Promotional Concepts).
The GC did pursue a case and issue a complaint against a non-compete clause in Juvly Aesthetics. Like Berry Green Management, that case also settled before an ALJ could issue a decision. But unlike Berry Green Management, the settlement agreement in Juvly Aesthetics was made public. That document reveals that the company agreed to rescind its non-compete agreements as part of settling the case.
Where Are We Now?
With the settling of Juvly Aesthetics, the GC no longer has any known case for getting a Board decision finding that non-compete clauses are illegal. The NLRB regions likely have some non-compete cases on their dockets — I know they have at least one because I am the legal representative on it — but these cases are in the pre-complaint stage and it is unclear whether any will actually make it to a complaint, let alone to an ALJ decision and then a Board decision.
Indeed, under the current processing times for NLRB cases, even if a complaint were issued on a non-compete case tomorrow, it would take an average of 447 days from there to get to a Board decision. By that point, President Biden’s first term will have ended. If Trump defeats Biden in the 2024 election, then a new GC will be installed who is not likely to pursue this particular theory about the illegality of non-compete clauses.
Thus, the NLRB’s efforts to strike a blow against non-compete clauses is running out of time and may have practically run out of time already. The hopes for making new law against non-competes during Biden’s first term rest primarily with the Federal Trade Commission’s forthcoming rulemaking.