Did the NLRB Preempt Non-Compete Litigation? | Seyfarth Shaw

Over the last week, two apparently unconnected events happened that impacted restrictive covenants and labor laws. First, the National Labor Relations Board’s General Counsel, Jennifer Abruzzo, issued a memorandum opinion that certain non-compete agreements may violate the National Labor Relations Act by suppressing workers’ ability to engage in protected concerted activity. Second, the Supreme Court issued the Glacier Northwest, Inc. v. Teamsters decision, where it was held that allegedly intentional destruction of property by a union was not covered by Garmon preemption, a preemption rule that restricts state courts from adjudicating state law claims that actually or arguably constitute an unfair labor practice. But in that ruling, a majority of the justices confirmed Garmon remains good law.

So putting the two together, does this mean that all non-compete litigation is preempted? After all, if a non-compete “reasonably chills” an employee’s ability to engage in protected concerted activity, and Garmon still operating to prevent state law claims that actually or arguably impeded on the NLRB’s jurisdiction to advocate unfair labor practices, then a lawsuit to enforce a non-compete should be preempted, right?

Well, probably not. The reasoning in the General Counsel’s memo would not extend to statutory supervisors, and there is minimal existing legal support for the NLRB’s continued annexation of matters traditionally within state jurisdiction.

The General Counsel’s Memo

My colleague previously posted about the General Counsel’s memo here. In short, the NLRB’s General Counsel released a memo theorizing that non-competes could impair an employee’s right to engage in concerted activity protected by Section 7 of the National Labor Relations Act. While the General Counsel seems intent on creating penumbra Section 7 rights that remain after employment ends, that position exists only in theory at this point. But even potential action by the NLRB creates potential preemption challenges to restrictive covenants.

A Brief Overview on Garmon

The NLRB is meant to be the first and primary forum to advocate matters invoking federal labor policy. To provide the Board with space to cultivate labor law free from state interference, Garmon preemption carves out from state regulation activity that is both actually and arguably prohibited by the NLRA.

Section 7 of the NLRA guarantees employees “the right to self-organize, 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.” Section 8, in turn, makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in” Section 7.

When a controversy is actually or arguably preempted by Garmon, a reviewing court should instead defer to the NLRB’s primary jurisdiction to avoid “the specter that state law will say one thing about the conduct underlying the dispute while the NLRA says another.” The animating rationale for preemption is that the NRLB—not states—should set federal labor policy and define the contours for what qualifies as an unfair labor practice and collective activity.

The Potential Impact on Restrictive Covenant Litigation

The General Counsel’s position, if it were actually adopted, threatens to create a procedural mess in restrictive covenant litigation. If the General Counsel got her wish and a non-compete agreement could, in fact, constitute an unfair labor practice by unduly restricting an employee’s ability to engage in protected concerted activity, then a court would arguably be unable to enforce the agreement or even determine whether it was enforceable. That question would first go to the Board. Employees could potentially complicate an action to enforce the agreement further by preemptively filing an unfair labor practice charge against the employer, thus creating a potential retaliation claim against the employer if the employer proceeds with filing a lawsuit.

Of course, this risk is theoretical without further evidence that the NLRB would adopt the position taken by the General Counsel. And the General Counsel’s memo, even if adopted, would only cover statutory “employees” under the NLRA, because generally only statutory employees under the NLRA have a right to exercise Section 7 rights. A statutory “supervisor” under the NLRA—meaning an employee who acts in the interest of an employer and whose position involves the exercise of independent judgment[1]—does not have the right to engage in concerted action. Without some theoretical impingement on Section 7 rights, the NLRB lacks any reason to take action involving a statutory supervisor’s restrictive covenants.

But seasoned restrictive covenant litigators should understand this memo has the potential to create a lot of mischief in employee departure litigation. It will be critical to have experienced counsel in both restrictive covenant litigation and NLRB proceedings. Luckily, Seyfarth fits the bill on both fronts.

[1] A statutory supervisor is “any individual having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or be responsible to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of such authority is not of a mere routine or clerical nature, but requires the use of independent judgment.” 29 USC § 152(11).

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