NLRB Memo Asserts Most Non-Compete Agreements Violate the National Labor Relations Act


National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo issued a memo on Tuesday, May 30, questioning the legality of non-compete agreements.

Abruzzo asserts that non-compete clauses are illegal as they have the potential to discourage employees from exercising their rights under Section 7 of the National Labor Relations Act (NLRA), which allows for collective action. Section 7 allows private-sector employees to join forces to assert their rights and present requests to their employer, under the protection of the law.

The memo argues that non-compete provisions inhibit private-sector employees from threatening to resign or to seek other employment opportunities in pursuit of better working conditions.

Are All Non-Competes Unlawful According to the NLRB?

General Counsel Abruzzo concedes that not all non-compete agreements necessarily violate the NLRA. She states the enforcement of non-compete agreements may be lawful if “the provision is narrowly tailored to special circumstances justifying the infringement on employee rights.”

According to Abruzzo, special circumstances that may justify a non-compete agreement include:

  • Protecting proprietary or trade information
  • Provisions that clearly restrict only individuals’ managerial or ownership interests in a competing business
  • True independent-contractor relationships (although the memo warns that a non-compete provision may still be unlawful within industries that commonly misclassify employees as independent contractors)

What Makes a Non-Compete Overbroad Per the NLRB?

General Counsel Abruzzo explained that non-competes are overbroad when they “tend to chill employees in the exercise of Section 7 rights” to improve working conditions.

Per Abruzzo, circumstances that do not justify a non-compete restriction include:

  • Non-compete provisions imposed on “low-wage or middle-wage workers who lack access to trade secrets or other protectable interests”
  • “A desire to avoid competition from a former employee is not a legitimate business interest that could support a special circumstances defense.”
  • An interest in retaining employees or protecting a special investment in training employees is “unlikely to ever justify an overbroad non-compete provision…”

What Does the NLRB Memo Mean for Texas Employers?

The NLRB General Counsel has instructed her regional directors and officers to “seek evidence of the impact of overbroad non-compete agreements on employees and, where applicable, present at trial evidence of any adverse consequences, including specific employment opportunities employees lost because of the agreements.”

Given this additional scrutiny, now is a good time to evaluate the enforceability of your non-compete agreements against Texas law.

To be enforceable in Texas, a non-compete agreement must:

  • Be ancillary to an otherwise enforceable agreement, such as an employment agreement;
  • Be reasonable in scope of activity;
  • Be reasonable in geographic area; and
  • Be reasonable in duration.

If a court deems any of these elements to be broader than necessary to protect the interests of the business, the court can reform or nullify the agreement.

Physician non-compete agreements have additional requirements and must allow doctors:

  • Access to a list of patients treated within the year preceding the separation from the practice
  • Reasonable access, upon patient consent, to relevant medical records
  • To provide for patients who need acute care even after the contract or employment has been terminated
  • To buy out of their agreement, if they choose, at a reasonable price, or, upon mutual consent, for a price set by a neutral third party

Next Steps

Non-compete agreements are not one-size-fits-all contracts. Make sure your non-compete agreements protect legitimate business interests and only apply to employees with access to proprietary information.

The attorneys of Hendershot Cowart P.C. can review your existing non-compete agreements and advise you on reasonable limitations for your specific industry and employment relationships. Our non-compete attorneys can also warn you about terms that may be overly restrictive or difficult to enforce.

Call (713) 909-7323 today for more information.

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