Original Publish Date: October 3, 2023
On May 30, 2023, U.S. National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo issued an agency-wide memo announcing her position that — except in limited circumstances — non-compete provisions in employment contracts and severance agreements violate Section 7 of the National Labor Relations Act (NLRA).
This latest guidance follows the NLRB’s February 21, 2023, decision in McLaren Macomb, in which the agency determined that employers may not offer employees severance agreements that include confidentiality, non-disparagement and other provisions that require employees to broadly waive their rights under the NLRA. Prior to that, in July 2022, the NLRB signed memoranda of understanding (MOUs) with the Federal Trade Commission (FTC) and the Department of Justice’s (DOJ) Antitrust Division, both of which include a focus on what they believe are the anticompetitive effects of non-compete agreements.
From the perspective of many employers — and private-sector health care providers, in particular — this latest memo represents another shot across the bow. According to 2022 Bureau of Labor Statistics data, 7.7% of health care and social assistance industry employees are represented by unions, as compared to 6.8% of all private-sector employees. Even higher percentages of employees in certain health care occupations are represented by unions, including health care practitioners and technical professionals (13.0%) and health care support staff (9.3%).
In her memo, Abruzzo explained that non-compete provisions “interfere with, restrain, or coerce employees” in the exercise of their right to “self-organization, 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.”
Both Abruzzo’s latest memo and the MOUs with the DOJ and FTC make it clear that a significant portion of NLRB leadership consider non-compete provisions to be oppressive and to have a chilling effect on employment markets. On the other hand, many employers claim that the NLRB itself is taking an extreme position on the impact of such terms in employment contracts and agreements, and is pursuing overly broad regulatory and law-enforcement action. Employer advocates argue that non-compete agreements have a minimal effect on unionization or collective bargaining efforts, but are, instead, focused on protecting legitimate business interests such as confidential and proprietary business information and a company’s longstanding business relationships and goodwill.
Further, employers note that non-compete and other agreements are consistent with management-rights clauses in collective-bargaining agreements that allow employers whose workforces are unionized to use their best judgment in managing the company. Management-rights clauses, even if broadly written, do not interfere with unionization or collective bargaining efforts.
For her part, in her May 30 memo Abruzzo noted that “not all non-compete agreements necessarily violate the NLRA.” Her description of such non-compete agreements was, however, somewhat vague and suggested only the following exceptions:
For now, the memo represents NLRB guidance and has not been enshrined into law. However, should the NLRB, in a decision involving an unfair labor practice charge against a specific employer, rule in a manner that supports this guidance, the new rule will be applied, with limited exceptions, to employees who are covered by the NLRA.
With all of this in mind, employers in the health care industry and related sectors should be aware of the potential impacts of the new guidance. Among other steps, they should review standard offer letters, handbooks, employment, severance, and related agreements and documents for potential risk.
In particular, the wording of agreements containing confidentiality, non-disclosure, non-compete, non-disparagement, non-solicitation, no-poaching, and other clauses — as well as liability releases, covenants not to sue, and cooperation requirements with respect to investigations or proceedings — should be updated to mitigate potential exposure. Where such provisions are extremely broad, more narrowly tailored language should be used. Employers should engage experienced legal counsel to help identify and resolve any such issues.
While such employer notices might help minimize compliance risk, a “model prophylactic statement of rights” proposed by the NLRB general counsel might itself increase exposure. The proposed statement is very detailed and may lead to the kind of “mixed or inconsistent messages” from employers that the NLRB could consider to be in violation of the guidance. The determination as to whether to issue such a statement may depend on the specific language in the employer’s existing contracts and agreements. As noted above, such decisions should be made in consultation with legal counsel.
Employers should also keep abreast of additional NLRB guidance or potential lawsuits. Clearly, current NLRB leadership is determined to loosen what it sees as the grip of overly broad provisions in employment and related contracts — provisions that such officials believe have a negative impact on employees’ ability to exercise their legal rights in pursuing employment, separating from an employer, seeking union representation, and more.
Finally, employers should be proactive in ensuring compliance with current and forthcoming guidance. While it is impossible to predict long-term trends regarding NLRB policy, it appears likely that — at least until the next election — the non-competition pendulum is swinging toward employees and organized labor. For health care employers, the risks of inaction, including regulatory investigations and potential law-enforcement action, continue to grow.
Tom Hubert and Joe Lavigne are lead attorneys on the trade secret and non-compete team at Jones Walker LLP. Their practice focuses on prosecuting and defending claims of employee misconduct involving trade secret violations, unfair trade practices, non-compete violations, invasion of privacy, Computer Fraud and Abuse Act issues, theft, and related disputes. They also advise healthcare clients on employment policies and practices and regularly negotiate employment agreements for employers.