Noncompete clauses 'chill' worker rights and are usually illegal, NLRB lawyer says

• Noncompete clauses likely violate federal labor law, NLRB's general counsel wrote Tuesday.
• The clauses limit workers' ability to organize and fight for improved conditions, she wrote.

Companies that force workers to sign "noncompete" clauses are likely breaking the law, infringing not just on those employee's freedom to find a better job but their ability to defend themselves and their colleagues at their current workplace, the top lawyer for the National Labor Relations Board said this week, marking a shift in policy under President Joe Biden that could impact millions of Americans.

In a memo addressed to NLRB's regional staff, General Counsel Jennifer Abruzzo, appointed by Biden in 2021, wrote that noncompete clauses — which generally prevent people from immediately moving to one of their employer's rivals — "tend to chill" workers' rights under federal law, specifically Section 7 of the National Labor Relations Act, which protects the ability to collectively organize and agitate for improved working conditions.

A person barred from moving to another company in their chosen profession, at least for a set amount of time, is less likely to fight for change at their current employer, Abruzzo argued in the memo, issued Tuesday, knowing that could well make them a target for termination; employers likewise have little reason to fear that disgruntled workers will be snatched up by a competitor, thus reducing the latter's bargaining power.

"[W]orkers know that they will have greater difficulty replacing their lost income if they are discharged for exercising their statutory rights to organize and act together to improve working conditions," Abruzzo said in a statement. A person who cannot easily find another job is not well-positioned to threaten a bad employer with a potential resignation, for example.

According to Abruzzo, there are some circumstances where employers may indeed have the right to insist on a noncompete clause, such as prohibiting an employee from having a managerial or ownership interest in a competitor. But, in general, she is urging NLRB staff to not only reject such clauses but, in disputes where they come up, make employers fully compensate those employees who "can demonstrate that they lost other opportunities."

Criticism from across the aisle

Worker advocates have long maintained that noncompete clauses are an unjust infringement on liberty that reduces employees' earning potential. Najah Farley, a senior staff attorney at the National Employment Law Project, has traced the provisions back to the days of slavery, "when former owners of enslaved people used noncompetes to keep freed Black workers working for them and maintain the master-slave relationship." Several largely Democratic states, such as California, Massachusetts, and Illinois, have in recent years moved to ban them at the state level.

But noncompete clauses have also attracted critics on the right. Writing for the American Enterprise Institute, a conservative think tank, then-visiting fellow John Lettieri argued in a 2020 report that the provisions "reduce overall dynamism in the economy" and are "negatively associated with wage growth, worker mobility, startup rates, and innovation activity."

The criticism from both sides of the political spectrum comes as noncompete clauses have expanded from high-salary workers in fields such as technology and finance to lower-wage professions, such as fast food.

Currently, about one in five US workers are subject to noncompete clauses, according to the Federal Trade Commission, which in January proposed a new federal rule that would prohibit most noncompete clauses that prevent workers from taking other jobs or starting a similar business, as Insider's Juliana Kaplan reported. That proposed rule, which will be subject to a legal challenge if and when it is finalized, came after the White House encouraged the commission to tackle noncompete clauses, framing them as a barrier to healthy competition and wage growth.

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