Trade Secrets & Employee Mobility

Over the course of the Biden administration, we have closely monitored parallel efforts by the Federal Trade Commission (FTC) and National Labor Relations Board (NLRB) to ban or limit the use of most non-compete agreements by employers. Now, in the wake of the recent presidential election, the future of these federal efforts is very much up in the air.

Predicting the incoming Trump administration’s position on non-compete bans is not straightforward. For one thing, the politics of non-competes is uncommonly non-partisan. The four states that generally ban non-competes include both very “blue” states (California and Minnesota) and very “red” states (North Dakota and Oklahoma). In addition, Trump advisors and appointees have conflicting views on the issue. On the one hand, former Florida congressman Matt Gaetz, a close advisor to Mr. Trump and his first pick for Attorney General, has previously publicized his support for the FTC’s non-compete ban. On the other hand, the Texas federal judge who blocked the FTC non-compete ban from taking effect nationwide was appointed by Mr. Trump during his first term.

Ultimately, the fate of FTC and NLRB efforts to ban non-competes will be in the hands of the individuals Mr. Trump picks to lead these agencies. Since winning the election, Mr. Trump has been setting records with the pace of his appointments to key posts but has not yet announced his nominees to lead the FTC and NLRB. Recent reporting, however, offers insight into some of the contenders for these posts as well as the likely fate of efforts by these agencies to ban non-competes once Mr. Trump takes office.

National Labor Relations Board (“Board”) General Counsel Jennifer Abruzzo (“Abruzzo”) issued a General Counsel Memo (Memo GC 25-01) last week signaling that employers could face civil prosecution and significant monetary remedies for using non-compete and so-called “stay-or-pay” provisions in agreements with their employees.The new memo, issued on October 7, 2024, builds on Abruzzo’s earlier General Counsel Memo issued in May 2023, where, as we reported, she outlined her belief that nearly all post-employment non-competes violate employees’ rights under the National Labor Relations Act (the “Act”).

Since Abruzzo’s May 2023 memo, employers have witnessed a number of significant developments in this space, including the Federal Trade Commission’s (“FTC”) issuance of a rule in April 2024 banning the use of most non-competes and a subsequent decision by a Texas federal judge blocking that FTC rule. In June 2024, an NLRB Administrative Law Judge issued a ruling in a case involving an Indiana HVAC company finding that non-competes and non-solicitation clauses violate the Act, a decision currently being appealed to the Board.

In her October 7, 2024 memo, Abruzzo again urges the Board to find non-competes with all employees who are subject to the Act’s jurisdiction (nonmanagerial and nonsupervisory employees) to violate the Act except in a few limited circumstances, arguing that such provisions are frequently “self-enforcing” and deter employee mobility. She also advocates for “make whole” remedies where employers are found to have continued to maintain unlawful non-competes. Specifically, the memo argues that merely voiding such provisions is insufficient and that employees should be afforded the right to seek compensatory relief for the “ill effects” that flow from complying with “unlawful non-compete provisions.”

[Update: On April 23, 2024, the Federal Trade Commission voted 3-2 to issue its final noncompete rule, with only a few changes from the proposed rule. Analysis of the final rule, the changes, and what may come next are discussed in this blog post.]

On April 16, 2024, the FTC announced that it will hold a special Open Commission Meeting on April 23, 2024 to vote on its proposed rule to ban the use of non-compete clauses in employment contracts, which has been pending since January 2023.  

As we reported then, the proposed rule, as drafted, would prohibit employers throughout the United States ...

On May 17, 2023, U.S. Senator Rob Wyden (D-OR) announced the release of a long-awaited report on the U.S. Government Accountability Office’s multi-year investigation into the use of noncompete agreements across the U.S. labor market. In announcing the release, Senator Wyden said that the GAO report “highlights the problems of noncompete agreements – particularly their impact on limiting workers’ fundamental freedom to change jobs,” and pledged to “fight tooth and nail for fair labor laws that protect workers and promote the creation of new businesses in Oregon and nationwide.”

The National Labor Relations Board’s top lawyer, Jennifer Abruzzo, issued  a General Counsel memo today instructing the Labor Board’s Regional Directors of her position  that noncompete clauses for employees protected by the National Labor Relations Act (NLRA) (i.e., nonmanagerial and nonsupervisory employees) in employment contracts and severance agreements violate federal labor law except in limited circumstances. The memo, while not law, outlines her legal theory which she will present to the National Labor Relations Board, which makes law primarily through adjudication of unfair labor practice cases.  The memo instructs the agency’s field offices of the position that the General Counsel is instructing them to take when investigating unfair labor practice charges claiming that such clauses interfere with employees’ rights under the NLRA.