CSG Law Alert: Non-Competes, FTC, NLRB: What Employers Should Know

Earlier this year, we issued a client alert discussing the Federal Trade Commission’s (“FTC”) announcement of proposed rules that would prevent employers from entering into non-compete clauses with workers and require employers to rescind existing non-compete clauses. Despite the fact the comment period on these proposed rules ended on April 19, 2023 and a final decision from the FTC is expected, these proposed rules are likely to be challenged for allegedly exceeding the scope of the FTC’s rulemaking authority.

However, non-competition clauses continue to be the subject of governmental attack. On May 30, 2023, the General Counsel for the National Labor Relations Board (“NLRB”) issued Memorandum 23-08 (“GC Memo 23-08”) which largely follows the stated purpose and implications of the FTC’s proposed rules, and expresses the view that a non-competition agreement is an “unfair labor practice” in violation of Section 8(a)(1) the National Labor Relations Act unless such an agreement or provision is narrowly tailored to address special circumstances justifying the infringement on employee rights. GC Memo 23-08 encourages all NLRB regional directors, officers-in-charge, and resident officers to pursue “make-whole relief for employees who, because of their employer’s unlawful maintenance of an overbroad non-compete provision, can demonstrate that they lost opportunities for other employment, even absent additional conduct by the employer to enforce the provision.”

Importantly, GC Memo 23-08 does not have the force of law but instead expresses the expected position that the NRLB will take in future litigation. Moreover, GC Memo 23-08 places an emphasis on non-compete agreements between employers and “low-wage or middle-wage workers who lack access to trade secrets or other protectible interests,” rather than managers or executives.

In light of GC Memo 23-08 and the FTC’s proposed rules, employers should review and carefully consider reliance upon contractual agreements with employees containing non-compete clauses. We also recommend that employers review and revise non-solicitation provisions and confidentiality provisions to ensure that such provisions do not have the effect of preventing or restricting a worker from competing against the employer, but still protect the employer.

If you have any questions relating to GC Memo 23-08 or the anticipated adoption of the FTC’s proposed rules, please feel free to reach out to your CSG Law attorney or the authors of this alert.