Noncompete agreements violate US labor law, official says

By Daniel Wiessner

(Reuters) – A U.S. labor board official on Tuesday said requiring workers to sign agreements not to join competing companies is usually illegal, the latest bid by government regulators to rein in the practice.

National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo in a memo to agency lawyers said so-called “noncompete agreements” discourage workers from exercising their rights under U.S. labor law to advocate for better working conditions.

Abruzzo, an appointee of Democratic President Joe Biden, in Tuesday’s memo said noncompetes violate labor law “unless the provision is narrowly tailored to special circumstances justifying the infringement on employee rights.”

Specifically, the pacts could prevent workers from resigning or threatening to do so to demand higher wages or other improvements at the workplace, Abruzzo wrote.

The agreements may also be lawful when they only restrict individuals’ ownership interests in a competing business, Abruzzo wrote.

The NLRB general counsel acts as a prosecutor and brings unfair labor practice cases to the separate five-member board, which currently has a Democratic majority.

The U.S. Federal Trade Commission, which enforces antitrust law, proposed a rule in January that would ban companies from requiring workers to sign noncompete provisions. The proposal is pending.

A 2021 academic study found that about 18% of U.S. workers, were subject to noncompete agreements. That included more than 13% of workers earning less than $40,000 per year, the study found.

California, Oklahoma and North Dakota have banned noncompete agreements and about a dozen other states have passed laws limiting their use. 

Business groups have said noncompetes are a crucial way for companies to protect trade secrets and that they promote competitiveness. But many Democrats and worker advocates say the agreements suppress wages and make workers less mobile.

Abruzzo asked agency lawyers to send cases to her office involving arguably unlawful noncompetes. Her office could use one of those cases to ask the board to restrict or prohibit the use of noncompetes.