Federal Official Claims Most Noncompete Agreements Violate the NLRA – IA Magazine

Noncompete agreements have long been treated like the “just in case” umbrella of employment law: many employers keep one around because it seems prudent, even when the weather forecast is legally cloudy. But when a top federal labor official argued that most employee noncompete agreements violate the National Labor Relations Act (NLRA), the conversation changed from “Is this contract enforceable?” to “Could this contract itself create labor-law risk?”

For independent insurance agencies, brokerages, small businesses, and employers that rely on producers, account managers, service teams, and sales staff, that question matters. Noncompete agreements have traditionally been used to protect client relationships, confidential information, goodwill, and training investments. Yet federal labor officials have increasingly viewed broad restrictions on worker mobility as more than a private contract issue. They may also interfere with employees’ rights to organize, discuss wages, seek better working conditions, or act together for mutual aid and protection.

This article explains what the federal claim means, why the NLRA matters even in nonunion workplaces, how the issue affects insurance agencies, and what employers can do now without stuffing their contracts full of scary language that reads like it was written by a dragon guarding a spreadsheet.

What Happened?

In 2023, National Labor Relations Board General Counsel Jennifer Abruzzo issued a memorandum arguing that many noncompete agreements are unlawful under the NLRA. Her position was that, except in limited circumstances, the act of offering, maintaining, or enforcing a noncompete could violate Section 8(a)(1) of the NLRA if the agreement chills employees from exercising rights protected by Section 7.

Section 7 protects employees’ rights to organize, join or assist labor organizations, bargain collectively, and engage in concerted activities for mutual aid or protection. That language may sound like it belongs only in unionized workplaces, but the NLRA protects many private-sector employees whether or not a union is present. In other words, the law can show up at the office even if no one has ever uttered the phrase “collective bargaining” near the coffee machine.

The General Counsel’s theory was straightforward: if employees fear they cannot leave for a competing company, start a similar business, or join coworkers at another workplace, they may be less willing to push back against poor working conditions. They may avoid discussing better pay, threatening to resign together, or supporting organizing activity because losing their job could mean losing access to their industry altogether.

Why Noncompete Agreements Are Under Scrutiny

A noncompete agreement usually restricts an employee from working for a competitor, starting a competing business, or performing similar work within a certain time period and geographic area after leaving a job. In narrow situations, employers argue these agreements help protect legitimate business interests such as trade secrets, confidential strategy, customer relationships, and specialized investments in training.

The problem is that many noncompetes go far beyond that. Some cover employees who have no access to sensitive information. Some apply to low-wage or mid-wage workers. Some last too long, cover too large a territory, or restrict nearly every practical job the worker could take next. When a contract blocks a person from earning a living in the field they know best, it can feel less like a shield for the business and more like a fence around the employee.

Labor advocates argue that overly broad noncompete clauses suppress wages, reduce job mobility, discourage entrepreneurship, and weaken employees’ bargaining power. Employers counter that reasonable restrictive covenants can protect client relationships, confidential information, and the value of training. Both points can be true, which is why the legal debate is so heated. The key issue is not whether every business interest is imaginary; it is whether a broad ban on future work is the least restrictive and most legally defensible way to protect it.

The NLRA Angle: Why Section 7 Changes the Conversation

The NLRA does not merely protect formal union organizing. It also protects employees who act together to improve pay, hours, safety, scheduling, benefits, or other working conditions. For example, employees may be protected when they discuss wages, complain together about workloads, coordinate requests for raises, or threaten to quit as a group over unfair conditions.

According to the federal labor theory, a broad noncompete can chill those rights in several ways. First, employees may hesitate to complain or organize if they believe termination would leave them unable to find comparable work. Second, workers may be less likely to threaten a group resignation if they cannot realistically move to a competitor. Third, employees may avoid encouraging coworkers to seek better jobs because doing so could trigger legal threats. Fourth, restrictions may interfere with workers who take jobs partly to organize or support other workers in the same industry.

That is why the issue goes beyond ordinary contract enforceability. A state court might ask whether a noncompete is reasonable in duration, geography, and scope. The NLRB question is different: does the agreement reasonably tend to interfere with protected concerted activity? If the answer is yes, an employer could face an unfair labor practice charge even if the contract has never been enforced.

What This Means for Independent Insurance Agencies

Insurance agencies have a special reason to pay attention. Many agencies rely on relationships: producers build books of business, account managers maintain trust with clients, and service teams know the details that keep renewals from turning into tiny paperwork bonfires. It is understandable that agency owners want to protect client lists, policy data, carrier relationships, pricing strategy, and goodwill.

However, the broadest noncompete is not always the best tool. In the insurance world, a producer agreement may contain a noncompete, a nonsolicitation clause, a confidentiality clause, a nonpiracy provision, and sometimes repayment language for bonuses or training. These provisions are often bundled together like a legal charcuterie board. The trouble begins when the employer tries to solve every possible risk by preventing the former employee from working in the industry at all.

For an agency, a more focused approach may be safer and more effective. Instead of saying, “You cannot work for any competing agency within 100 miles for two years,” the agreement might focus on not soliciting specific clients the employee serviced, not using confidential information, returning agency property, and protecting trade secrets. Narrow tools are not automatically legal, but they are usually easier to defend than sweeping restrictions that look like they were written with a flamethrower.

Current Legal Status: Not a Simple Ban, Not a Free Pass

The federal landscape has shifted since the original IA Magazine topic appeared. The NLRB General Counsel’s 2023 position was influential, but General Counsel memoranda are guidance for agency prosecutors; they are not the same as binding Supreme Court precedent or a final statute passed by Congress. In 2025, the NLRB’s Acting General Counsel rescinded several Abruzzo-era memoranda, including the noncompete guidance. That means the agency’s enforcement posture changed, but it does not erase the broader legal risk around overbroad restrictions.

The Federal Trade Commission also entered the arena. In 2024, the FTC issued a final rule that would have banned most worker noncompetes nationwide, with limited exceptions. However, a federal court blocked the rule, and the FTC later moved away from defending it. As a result, the FTC’s nationwide noncompete rule is not currently enforceable.

Still, employers should not interpret that as a green light to paste broad noncompetes into every offer letter. State laws continue to vary widely. Some states ban employee noncompetes almost entirely. Others restrict them for low-wage workers, require advance notice, mandate garden leave, limit duration, or impose income thresholds. In many states, courts still apply reasonableness tests that examine whether the restriction protects a legitimate business interest without imposing undue hardship on the employee or harming the public.

Examples of Risky Noncompete Language

Not every restrictive covenant is equally risky. Some agreements are tailored, specific, and tied to real business interests. Others are so broad they practically say, “After leaving, please become a lighthouse keeper in another galaxy.” Employers should be cautious with language that:

• Applies to employees who do not access trade secrets, client strategy, pricing data, or confidential business information.
• Bars work for any competitor, in any role, even if the new role does not involve the former employer’s clients or confidential information.
• Covers an excessive geographic area unrelated to the employer’s actual market.
• Lasts longer than necessary to protect client goodwill or confidential information.
• Restricts employees from discussing wages, working conditions, staffing concerns, or employment opportunities with coworkers.
• Threatens legal action so aggressively that employees may fear engaging in protected activity.

For example, imagine a customer service representative at a regional insurance agency who handles routine policy updates but does not manage strategic accounts or access proprietary sales plans. A two-year ban on working for any insurance agency in the state may look excessive. A confidentiality agreement protecting client data and agency systems would likely be more targeted. A nonsolicitation clause limited to clients the employee actually serviced may also be easier to justify than a full industry ban.

Better Alternatives to Broad Noncompetes

Employers do have options. Protecting a business does not require turning every employment agreement into a medieval moat. The best approach is usually layered, practical, and narrow.

Use Strong Confidentiality Agreements

A confidentiality agreement can prohibit employees from using or disclosing trade secrets, client data, pricing methods, renewal strategies, internal documents, marketing plans, and other proprietary information. This focuses on the real harm: misuse of information, not ordinary career movement.

Consider Narrow Nonsolicitation Clauses

A nonsolicitation clause may restrict a former employee from soliciting specific clients, prospects, or employees for a limited period. For insurance agencies, this can protect client relationships without completely preventing the worker from earning a living in the industry.

Protect Trade Secrets Operationally

Contracts help, but good internal practices matter too. Limit access to sensitive data, use secure systems, track downloads, require return of devices, and train employees on confidentiality. A business that treats everything as confidential but protects nothing carefully may have a harder time proving its secrets are actually secret.

Reward Retention Instead of Punishing Departure

Retention bonuses, career paths, mentorship, competitive compensation, and positive workplace culture can reduce turnover without relying on restrictions. Employees are more likely to stay when the workplace is worth staying for. Revolutionary concept, yes, but surprisingly effective.

Practical Compliance Checklist for Employers

Employers should review existing agreements with fresh eyes. The goal is not panic; it is prevention. A sensible noncompete review should include the following steps:

• Identify which employees have noncompetes and why.
• Separate noncompetes from nonsolicitation, confidentiality, nondisclosure, and trade secret provisions.
• Confirm whether each restriction is permitted under the employee’s state law.
• Ask whether the employee actually has access to protectable interests.
• Reduce overly broad restrictions in duration, geography, and job scope.
• Remove language that could restrict wage discussions, group resignations, organizing, or other protected activity.
• Train managers not to threaten employees casually with restrictive covenants.
• Consult employment counsel before enforcing a noncompete, especially against nonmanagerial employees.

This review is especially important after mergers, acquisitions, producer transitions, or agency perpetuation planning. Old contracts often linger like mystery leftovers in the office refrigerator. They may have been drafted under outdated law, copied from another state, or expanded over time without anyone asking whether the language still makes sense.

What Employees Should Understand

Employees should not assume a noncompete is automatically enforceable just because they signed it. They also should not assume it is meaningless. Enforceability depends on state law, the employee’s role, the agreement’s wording, the employer’s legitimate interests, and the facts surrounding departure.

If an employee is considering a job change, it is wise to read the agreement carefully, save a copy, avoid taking confidential materials, and seek legal advice before contacting clients or coworkers. Even when a noncompete is questionable, mishandling confidential information can create separate legal problems. The safest exit is clean, documented, and boring. In employment law, boring is often beautiful.

Experience-Based Insights: What This Looks Like in the Real World

In practice, noncompete disputes often begin long before anyone files a lawsuit. They start with a resignation email, a nervous manager, and a former employee who suddenly appears on LinkedIn with a new title at a competitor. The employer worries about lost clients. The employee worries about a cease-and-desist letter. Coworkers watch the drama unfold like it is a workplace streaming series with too many seasons.

One common lesson is that broad agreements can create false confidence. An agency owner may believe a sweeping noncompete guarantees protection. But if the clause is too broad, poorly drafted, or inconsistent with state law, it may be difficult to enforce. Worse, an aggressive threat based on a questionable agreement can backfire by triggering labor-law concerns, damaging morale, or encouraging employees to seek legal help.

Another lesson is that client relationships are rarely protected by contract alone. If clients stay only because a former employee is legally restrained, the agency has a retention problem disguised as a legal strategy. Strong service standards, team-based account management, documented client touchpoints, and clear ownership of agency data are often more powerful than a scary paragraph in an employment agreement.

Employers also learn that one-size-fits-all contracts are risky. The same restriction should not automatically apply to a senior executive, a producer with a major book of business, a junior account assistant, and a temporary employee. Courts and agencies care about facts. What information did the employee access? Which clients did they service? How long would the information remain valuable? What harm is the employer actually trying to prevent?

For employees, the real-world lesson is equally practical: do not ignore what you signed. Many workers discover their noncompete only after accepting a new position. That is a stressful moment to read legal language for the first time, especially when your start date is Monday and your former boss just used the phrase “our attorneys.” Reviewing restrictions before giving notice can prevent expensive surprises.

For insurance agencies, the best experience-based approach is to replace fear with structure. Use confidentiality agreements that clearly define protected information. Use nonsolicitation clauses that focus on actual client relationships. Keep client records inside agency systems. Conduct exit interviews. Disable access promptly. Remind departing employees of lawful obligations without overstating restrictions. And perhaps most importantly, build an agency culture where people do not feel they need a jailbreak plan to advance their careers.

The broader lesson from the NLRA noncompete debate is simple: employment contracts are no longer just private paperwork between employer and employee. They can affect competition, wages, organizing, mobility, and workplace power. That means restrictive covenants should be drafted with precision, reviewed regularly, and used only when they protect a real interest in a reasonable way.

Conclusion

The claim that most noncompete agreements violate the NLRA was a major moment in the national debate over worker mobility and employer protection. Although federal enforcement positions have changed and the FTC’s nationwide rule is not currently enforceable, the direction of travel remains clear: broad noncompetes face intense scrutiny from regulators, courts, lawmakers, employees, and business groups.

For independent insurance agencies and other employers, the smartest move is not to abandon protection. It is to modernize it. Replace blanket restrictions with carefully tailored confidentiality, trade secret, and nonsolicitation provisions. Review agreements under current state law. Avoid language that chills protected employee activity. And remember that the best retention strategy is not trapping people in place; it is creating a workplace they would choose again.

Note: This article is for general informational and SEO publishing purposes only. It is not legal advice. Employers and employees should consult qualified employment counsel about specific agreements and state-law requirements.