Client Alert: NLRB Contradicts Ryan, LLC v. FTC
On October 7, 2024, the National Labor Relations Board (“NLRB”) General Counsel Jennifer Abruzzo issued a memorandum urging the NLRB to find certain non-compete provisions unlawful and prevent employers from applying them. In particular, Abruzzo argues that broad non-compete agreements violate the National Labor Relations Act by preventing employees from securing a new job as a means of improving terms and conditions of employment.
Abruzzo calls not only for prosecution of employers with overly broad non-competes baked into their employment contracts, but also suggests that employers can be liable for damages to “make-whole” the affected employee. For example, employers may be liable for costs associated with a former employee who was qualified for a position available during their job search, but that they were discouraged from applying to as a result of a non-compete provision.
Abruzzo’s push for harsher treatment of non-compete provisions by the NLRB conflicts with Ryan, LLC v. FTC, a recent decision out of a federal district court in Texas finding that the Federal Trade Commission (the “FTC”) lacks statutory authority to promulgate its prospective ban on a vast majority of non-compete agreements throughout the United States. In August of this year, the Court found that the proposed ban was “arbitrary and capricious because it is unreasonably overbroad without a reasonable explanation.” You can read our previous alerts about the FTC non-compete ban here, here and here.
Abruzzo acknowledges the holding in Ryan in a footnote, but does not discuss whether the General Counsel’s position is at odds with recent federal case law. In the future, we are likely to see employers who are prosecuted by the NLRB appealing adverse rulings by citing the Ryan decision.
As the future of non-compete provisions at the federal level continues to be litigated, Bernkopf will be available to help you navigate the rights and obligations of employers and employees alike. It is important to keep in mind that despite the uncertainty at the federal level, business must remain compliant with state law. Massachusetts, like many other states, has statutory limitations on noncompete agreements.
If you have any questions about these developments, or how you can leverage restrictive covenants to protect investments in your business, please contact Eric Allon, David Hansen, or your Bernkopf attorney.
ABOUT THE AUTHOR
Eric R. Allon
Of Counsel
Eric’s principal practice areas are real estate law and business law, with particular emphasis on commercial leasing, the acquisition, management and sale of properties, financing transactions, commercial loan workouts and residential and commercial development.