NONCOMPETE AGREEMENTS AND THE NLRB

On May 30, the National Labor Relations Board (NLRB) General Counsel issued a memorandum announcing that many noncompete agreements violate the National Labor Relations Act.  This memo comes in the wake of the Federal Trade Commission’s (FTC) proposed new rule that would ban noncompete agreements nationwide. 

The NLRB’s opinion is based on the conclusion that noncompete agreements can chill employees from exercising their rights under the National Labor Relations Act, which protects employees’ rights to take collective action to improve their working conditions. The FTC’s rationale is that noncompetes are an unfair method of competition, and thus violate the Federal Trade Commission Act. 

Unlike the FTC’s proposed rule which would apply to virtually all workers, the NLRB’s opinion would not apply to nonmanagerial, supervisory staff, because the National Labor Relations Act does not apply to those higher-level employees.  It is the higher-level employees who are the most likely to have noncompetes.

Keep in mind that Virginia already has restrictions on noncompete agreements for “low wage” employees.  See Va. Code § 40.1-28.7:8. Covenants not to compete prohibited as to low-wage employees; civil penalty (virginia.gov) .  The Virginia law, however, did not take effect until July 1, 2020 and is not retroactive, unlike the FTC’s proposal.

          We are waiting for the final version of the FTC’s proposed rule, and anticipate that the rule will be challenged in court.  Some experts believe that the FTC has exceeded its authority in proposing the new rule. Court challenges to the NLRB’s new opinion are also likely.  It will be interesting to see whether courts will agree with the NLRB’s interpretation of the law.