(908)402-4770In a significant development for employers, on February 14, 2025, the National Labor Relations Board (NLRB) Acting General Counsel, William B. Cowen, rescinded prior NLRB General Counsel memoranda, including two restrictive covenant-related memoranda authored by former General Counsel, Jennifer Abruzzo. This action reverses the stance taken by Abruzzo, who had argued that certain restrictive covenant agreements interfered with employees’ rights under Section 7 of the National Labor Relations Act (NLRA).
Specifically, Memorandum GC 25-05 rescinds prior memoranda that deemed two categories of restrictive covenant agreements with non-supervisory and non-management employees as violations of the NLRA:
1.Non-compete agreements in employment contracts and severance agreements.
2.Stay-or-pay agreements, which require employees to remain employed for a certain period or reimburse the employer certain amounts.
The rescission of these memos is an important development for employers that use restrictive covenants and/or stay-or-pay agreements, as it changes the federal legal and practical risk framework regarding their enforceability.
The Acting General Counsel’s memo rescinded GC 23-08, which had declared that the “proffer, maintenance, and enforcement” of non-compete agreements in employment contracts and severance agreements violated the NLRA. Additionally, GC 25-01 was rescinded, which had identified as unlawful many common provisions requiring employees to repay their employers for certain bonuses and benefits if they voluntarily or involuntarily separated from employment before the expiration of a defined stay period.
Lingering Risks Despite the Rescission
While the rescission of these memos is a welcome development for the employer community, some labor risk remains concerning these agreements. Abruzzo’s positions on non-compete and stay-or-pay agreements were at least partly based on two NLRB decisions:
•McLaren Macomb, which ruled that certain nondisparagement and confidentiality provisions presented to nonmanagerial employees violated Section 7 rights.
•Stericycle, Inc., which established a new standard for determining when an employer work rule infringes on employees’ Section 7 rights.
Since these cases are still active Board law, efforts to adopt new standards would require a fully constituted NLRB, which currently lacks a quorum. Employers also need to consider conflicting decisions from NLRB administrative law judges (ALJs).
Conflicting ALJ Rulings
Some ALJs have upheld Abruzzo’s position, asserting that non-compete agreements for non-supervisory/non-management employees violate the NLRA. Others have rejected Abruzzo’s stance, stating that existing law does not support such an interpretation and that the NLRB has not officially adopted her position.
As a result, employers should proceed cautiously and not assume complete legal certainty in abandoning Abruzzo’s positions entirely. Instead, they should weigh the risk of legal challenges against their legitimate business interests in enforcing restrictive covenants.
What This Means for Employers
The rescission of these memos reshapes the risk analysis for using restrictive covenants in employment contracts and severance agreements. Employers may now have more flexibility in implementing and enforcing non-compete clauses without the same level of legal scrutiny.
However, it’s important to note that restrictive covenants for non-supervisory employees continue to be governed by state law. Employers must still ensure compliance with state-specific regulations and craft agreements that protect legitimate business interests, such as:
• Confidential information
• Trade secrets
• Customer and employee goodwill
• Prevention of unfair competition
Practical Steps for Employers
To navigate these changes effectively, businesses should:
•Review existing agreements to ensure compliance with both federal and state laws.
•Tailor restrictive covenants to protect legitimate business interests without overreach.
•Seek legal counsel to understand specific implications for their organization.
•Stay updated on ongoing NLRB rulings and state legislation.
Final Thoughts
The NLRB’s recent decision provides businesses with greater flexibility regarding non-compete and stay-or-pay agreements. However, employers must balance this flexibility with careful consideration of state laws and potential legal risks. By taking proactive steps and consulting legal experts, businesses can successfully navigate this evolving regulatory landscape.