On February 14, 2025, the National Labor Relations Board (NLRB) Acting General Counsel (GC) William B. Cowen issued a significant policy shift by rescinding previous memoranda related to non-compete agreements and stay-or-pay provisions. The key documents rescinded include the “GC 23-08 Non-Compete Agreements that Violate the National Labor Relations Act” and “GC 25-01 Remedying the Harmful Effects of Non-Compete and Stay-or-Pay Provisions that Violate the National Labor Relations Act,” both authored by former GC Jennifer Abruzzo.
Change in Policy
Rescission of Previous Memoranda
The rescission of GC 23-08 and GC 25-01 signifies a pivotal change in NLRB policy regarding the use of non-compete agreements and stay-or-pay provisions with non-supervisory and non-management employees. Under former GC Jennifer Abruzzo, the stance was that the “proffer, maintenance, and enforcement” of non-compete agreements typically violated the National Labor Relations Act (NLRA) unless under narrowly defined circumstances. Abruzzo viewed these agreements as obstructing employees’ rights to engage in concerted activities protected under Section 7 of the NLRA.
The memoranda issued by Abruzzo also argued that stay-or-pay provisions, which require employees to remain employed for a specific period or repay certain bonuses and benefits upon separation, violated Section 8(a)(1) of the NLRA unless they advanced legitimate business interests while minimizing interference with employees’ Section 7 rights. With Cowen’s rescission of these memoranda, employers now face a different legal landscape, offering potentially greater flexibility in terms of the enforcement and implementation of these types of restrictive covenants.
Legal Implications
For employers utilizing restrictive covenants, the rescission alters the risk framework associated with the enforceability of these provisions. Employers may now have greater flexibility to implement and enforce non-compete clauses without facing the same legal scrutiny or risk of violating non-supervisory or non-management employees’ NLRA rights. This change moves away from the more employee-protective stance taken by Jennifer Abruzzo and could be seen as a more business-friendly approach that aligns with the interests of employers seeking to safeguard their competitive advantages.
However, despite the potential relaxation at the federal level, employers must still navigate a complex legal landscape. While federal scrutiny may lessen, restrictive covenants continue to be governed by state laws, necessitating careful drafting to ensure compliance and protect legitimate business interests. Employers must be mindful of these varying state laws, as they can often be stricter than federal guidelines, thus requiring tailored solutions to avoid legal challenges. Additionally, existing Board laws grounded in decisions such as McLaren Macomb and Stericycle, Inc., still exert influence, underscoring the necessity for employers to remain judicious in their restrictive covenant policies.
Employers’ Perspective
Increased Flexibility
The NLRB under William B. Cowen’s acting General Counsel position is more favorable towards employer flexibility in using non-compete and stay-or-pay agreements compared to the previous administration’s stance. This shift reflects broader changes in regulatory attitudes towards restrictive covenants, potentially signaling a more business-friendly environment within federal regulatory agencies. As a result, employers may feel more empowered to introduce or maintain non-compete clauses as part of their strategy to protect trade secrets, maintain customer relationships, and prevent former employees from joining competitors.
However, it is essential for employers to proceed with caution, as state laws governing non-compete agreements can differ widely. While the NLRB’s stance may now be more lenient, the enforceability and legality of such covenants can still face significant scrutiny at the state level. Employers should work closely with legal counsel to ensure that their non-compete agreements are compliant with relevant state laws and are designed to withstand potential legal challenges. This careful approach will help employers balance the need for protection with the assurance of legal compliance and fairness.
Navigating the Legal Landscape
Moving forward, employers must still navigate a complex legal landscape. While federal scrutiny may lessen, restrictive covenants continue to be governed by state laws, necessitating careful drafting to ensure compliance and protect legitimate business interests. Legacy positions rooted in NLRB decisions like McLaren Macomb and Stericycle, Inc., continue to exert influence. These cases address the legality of work rules and provisions under Section 7 rights, demonstrating the ongoing need for employers to be judicious in their restrictive covenant policies. Employers should remain vigilant and regularly review their policies to ensure they are aligned with current legal interpretations and standards.
Navigating the patchwork of state laws and NLRB interpretations requires a nuanced understanding of both federal and state employment law. Employers need to pay close attention to the unique requirements and constraints imposed by the jurisdictions in which they operate. This includes being aware of any recent changes to state laws and understanding how those changes interact with federal guidelines. By adopting a proactive and informed approach, employers can effectively mitigate risks and ensure that their restrictive covenants serve both their business interests and comply with legal requirements.
Broader Trends and Implications
Regulatory Trends
The rescission by Cowen reflects a broader, more employer-friendly regulatory trend, affording businesses greater operational flexibility. Yet, because of the mixed interpretations among NLRB Administrative Law Judges (ALJs) and the need for alignment with existing Board precedents, employers are advised to act cautiously. Legal and practical risks remain, particularly in jurisdictions with divergent state laws or where NLRB interpretations may conflict. The potential for differing interpretations by ALJs suggests that despite the rescission, there might still be inconsistent application and enforcement of non-compete agreements.
This regulatory shift is part of a larger trend where federal agencies are re-evaluating their stances on various employment issues. As regulatory attitudes become more favorable towards employers, businesses must adapt by staying informed about changes and ensuring that their policies reflect the latest legal standards. The evolving landscape calls for vigilance and adaptability, with employers needing to keep abreast of regulatory changes and their potential impact on restrictive covenants and other employment practices.
State Law Considerations
On February 14, 2025, William B. Cowen, the Acting General Counsel (GC) of the National Labor Relations Board (NLRB), issued a notable policy change by revoking previous memoranda related to non-compete agreements and stay-or-pay provisions. This change significantly affects employers who use restrictive covenants in their employment contracts. The primary documents rescinded include “GC 23-08 Non-Compete Agreements that Violate the National Labor Relations Act” and “GC 25-01 Remedying the Harmful Effects of Non-Compete and Stay-or-Pay Provisions that Violate the National Labor Relations Act,” both of which were authored by former GC Jennifer Abruzzo. Cowen’s decision to nullify these memoranda indicates a major shift in how the NLRB views and enforces such employment restrictions. Employers must now reevaluate their current policies and practices to ensure compliance with the updated guidelines. This move is poised to have a broad impact on employer-employee relationships and the legal landscape of employment agreements going forward.