Do Non-Competes Violate the NLRA?

[Fit Small Business | ]( HR Insights from Our Experts [Do Non-Competes Violate the NLRA? ] Welcome to this week's HR newsletter. We’re so happy to have you!     Are Non-Compete Agreements Illegal?   The general answer to this question is maybe. While non-compete agreements are not fully illegal, depending on how broad your non-compete is, it could violate the National Labor Relations Act (NLRA). In May 2023, general counsel for the National Labor Relations Board (NLRB) stated in a memo that non-competes violate a worker’s right to improve their working conditions. Specifically [the memo stated](: Overbroad non-compete agreements are unlawful because they chill employees from exercising their rights under [Section 7 of the National Labor Relations Ac](t, which protects employees’ rights to take collective action to improve their working conditions. Specifically, these agreements interfere with employees' ability to: - concertedly threaten to resign to secure better working conditions; - carry out concerted threats to resign or otherwise concertedly resign to secure improved working conditions; - concertedly seek or accept employment with a local competitor to obtain better working conditions; - solicit their co-workers to go work for a local competitor as part of a broader course of protected concerted activity; - seek employment, at least in part, to specifically engage in protected activity, including union organizing, with other workers at an employer’s workplace. There are some cases where a non-compete can be lawful. For example, if the non-compete only restricts the managerial or ownership interest in a competing business, it could be enforceable. This does not mean that the employee can no longer work in the industry, only that they could not hold a high position in a company that directly competes with their current company. Additionally, a non-compete can also be lawful if it restricts current employees from revealing trade secret information and/or communicating with current clients and customers for the sole purpose of taking them to the new company. If you are unsure if your non-compete agreements violate the NLRA, we recommend you have your attorney review the document. As a small business owner, there are so many different aspects of the payroll and HR process that you’ll need to manage for your team. If you’re looking for an all-in-one HR platform that streamlines and automates employee management processes, consider Rippling. Its robust features allow you to hire, manage, pay, and train employees. In addition to HR tools, Rippling offers IT solutions for setting up and monitoring computer devices and app access. It’s ideal for small to midsize companies—especially those with plans to expand internationally. [Visit Rippling](         How Do Non-Compete Agreements Violate Federal Labor Laws? Non-compete agreements can potentially violate [federal labor laws](, specifically the National Labor Relations Act (NLRA), in certain circumstances. The NLRA protects employees' rights to engage in concerted activities for the purpose of mutual aid or protection. [Non-compete agreements]( that are overly broad or restrictive can infringe upon these rights, leading to a violation of federal labor law. Here's how they can violate the NLRA: - Interference with collective action: Non-compete agreements may discourage employees from working together to improve their working conditions. The NLRA ensures employees can engage in collective actions such as organizing, protesting, or negotiating for better pay, benefits, and working conditions. If a noncompete agreement hinders employees' ability to act together in this manner, it could be seen as a violation. - Restriction of employee mobility: Non-compete agreements that prevent employees from seeking employment with competitors can limit their job options and mobility. This could impact their ability to negotiate for better terms with their current employer or a potential new one. The NLRA aims to protect employees' right to choose their workplace and engage in economic activities without undue restrictions. - Suppression of protected activities: Non-compete agreements might prohibit employees from joining or forming labor unions, engaging in discussions about workplace conditions, or participating in other activities protected by the NLRA. These agreements could be construed as infringing on employees' rights to engage in concerted activities for their mutual benefit. - Chilling effect on employees: The presence of an overly broad non-compete agreement might deter employees from speaking out about workplace issues, voicing concerns, or participating in efforts to improve their conditions. Such agreements can create a chilling effect on employees' willingness to exercise their NLRA-protected rights. - Limiting organizing efforts: Noncompete agreements that restrict employees' ability to move to competing employers could hinder efforts to unionize or collectively bargain for improved working conditions. The NLRA safeguards employees' rights to engage in these activities without interference. It's important to note that the applicability of non-compete agreements and their potential violation of federal labor law can be complex and context-dependent. Legal interpretations may vary, and not all non-compete agreements automatically violate the NLRA. However, agreements that overly restrict employees' ability to engage in protected collective activities are more likely to be considered in violation of federal labor law.     How to Carefully Draft a Non-Compete Agreement   The intersection of non-compete agreements and the NLRA is an evolving legal landscape that requires careful consideration from both employers and employees. While non-compete agreements can serve valid purposes, they must be crafted with an understanding of the NLRA's protections. Here are some key steps to consider when creating a well-crafted non-compete agreement: - Consult Legal Counsel: Before creating any non-compete agreement, it's crucial to consult with an experienced employment attorney who is well-versed in the laws of your jurisdiction. Employment laws and regulations vary from place to place, so having legal guidance specific to your situation is essential. - Identify Legitimate Business Interests: Clearly define the legitimate business interests you aim to protect with the non-compete agreement. These could include protecting trade secrets, confidential information, customer relationships, specialized training, or proprietary processes. - Reasonable Scope, Duration, and Geographic Area: Ensure that the scope, duration, and geographic area of the non-compete agreement are reasonable and proportionate to the legitimate interests you're seeking to protect. Overly broad or excessively long agreements are more likely to be struck down by courts. - Specificity in Language: Use clear and precise language to define the prohibited activities and the scope of the restriction. Vague terms can lead to confusion and potential challenges in enforcement. - Tailor the Agreement: Craft the agreement to the individual employee's role, responsibilities, and level within the organization. A one-size-fits-all approach may not hold up in court, as different positions have different levels of access to sensitive information. - Consider Job Market Realities: Take into account the nature of the industry, the employee's expertise, and the availability of similar job opportunities in the area. If the restrictions are so broad that they hinder the employee's ability to find work in their field, the agreement may be deemed unreasonable. - Provide Consideration: Non-compete agreements generally require some form of consideration (benefit) to the employee in exchange for agreeing to the restrictions. This could be initial employment, promotions, raises, specialized training, or access to proprietary information. - Include Severability Clause: Add a severability clause stating that if any portion of the agreement is found unenforceable, the rest of the agreement will remain intact. This can help protect the overall enforceability of the agreement. - Notice and Review Period: Consider providing the employee with sufficient time to review the agreement and seek legal counsel before signing. Rushing an employee into signing the agreement may weaken its enforceability. - Regular Review and Update: Businesses change over time, so periodically review and update your non-compete agreements to ensure they remain relevant and aligned with your current business needs and industry trends. Remember that non-compete agreements must be carefully tailored to comply with the laws and regulations of your jurisdiction. Consulting with a legal professional is crucial to creating an effective and enforceable non-compete agreement that respects both your business interests and the rights of your employees.     What is human resources (HR) software? Human resources (HR) software systems unify [recruitment](, [payroll](, [training](, [employee engagement](, [performance management](, and other essential HR functions. This provides a secure database of employee data and a centralized view of the company. It also helps HR teams manage each stage of the [employee life cycle]( effectively. [Read More](     What’s new in HR? Check out some of our latest HR content:   [Hiring Family Members: What You Need to Know]( Hiring family members for your small business can be a strategic move or a potential pitfall. This comprehensive guide is designed to help you navigate the complexities that come with employing relatives. From understanding nepotism and its implications to exploring the pros and cons of family employment, we discuss various aspects that can impact your business operations. [READ MORE]( [Employment Reference Check: 2023 Guide for Small Businesses]( An employment reference check refers to calls you make to at least two references (they may be personal or professional) where you ask about the candidate’s qualities, qualifications, and work habits. While most references that an applicant provides are biased in their favor, asking the right questions can help you uncover some red flags or confirm your hiring choice. This guide covers the types of reference checks, how to conduct them, and legal issues surrounding reference checks, including questions to avoid. [READ MORE](     Meet Fit Small Business’ HR & Payroll Experts   [-Jennifer Hartman, HR Staff Writer & Human Resources Expert]( Throughout her career, Heather has worked to help hundreds of small business owners manage many aspects of their business, from bookkeeping to accounting to HR. Her experience has allowed her to learn firsthand the payroll needs of small business owners. [Heather Landau]( [-Jennifer Hartman, HR Staff Writer & Human Resources Expert]( Jen has more than 20 years of writing and content experience, working with small businesses and Fortune 100 companies. She worked as an HR generalist for over a decade, providing accounting, payroll, and HR expertise. [Jennifer Soper]( [-Jennifer Hartman, HR Staff Writer & Human Resources Expert]( Robie is a payroll and HR expert at Fit Small Business, focusing on software. She has over eight years of content writing experience, handling different topics. Robie also worked as an HR specialist for 10 years where she managed various facets of HR—from payroll and benefits to employee services and HR systems. [Robie Ann Ferrer]( [-Jennifer Hartman, HR Staff Writer & Human Resources Expert]( Juvy has more than 10 years of experience writing product reviews and providing online content for small businesses. Juvy was also a college instructor. She believes that her teaching background, writing experience, and supportive team members are crucial in providing the best answers to readers. [Juvy Vallescas]( [-Jennifer Hartman, HR Staff Writer & Human Resources Expert]( Genevieve has more than 13 years of writing experience, working with different clients in various industries. She has ghostwritten several books and ebooks on marketing and leadership. Genevieve also worked as an HR Head of a local manufacturing company and has helped small businesses set up their business and HR processes. [Genevieve Que](     Wondering how you can support your employees through trying personal times, such as divorce? Check out next week's newsletter for our take and helpful tips! Until next time, Heather Landau, Jennifer Soper, Robie Ann Ferrer, Juvy Vallescas, and Genevieve Que   For more quality resources on growing your small business: [Marketing]( | [Financing]( | [Accounting]( | [HR]( | [Retail]( | [Ecommerce]( | [Sales]( [Facebook]( [Twitter]( [LinkedIn]( [Alternate text] Want to change what you receive in your inbox? [Update Your Preferences]( [Image]   We spend hours researching and writing our articles and strive to provide accurate, up-to-date content. However, our research is meant to aid your own, and we are not acting as licensed professionals. We recommend that you consult with your own lawyer, accountant, or other licensed professional for relevant business decisions. 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