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.”

On September 12, 2024, the Regional Director of the National Labor Relations Board’s (“NLRB”) Region 22 in Newark, New Jersey, issued an unfair labor practice complaint against a New Jersey building services company, alleging that employee non-hire (or “no poach”) provisions in the company’s contracts with its building clients violate the National Labor Relations Act (the “Act”).

According to the NLRB’s news release, the complaint alleges that Planned Companies D/B/A Planned Building Services, which is a janitorial, building maintenance, and concierge services provider, “has maintained provisions in its contracts with its client buildings that interfere with, and are inherently destructive of, workers’ rights under Sections 8(a)(1) and (3) of the National Labor Relations Act.”  It further alleges that “Planned Companies restricts its client buildings from soliciting its employees to work for them in a similar job classification for a period of six months after the agreement is terminated, or from hiring employees after they leave Planned Companies’ employment. Any entity retained by the client building to replace Planned Companies is also bound by the hiring restriction.” 

A hearing before an NLRB Administrative Law Judge has been set for November 12, 2024.