NLRB rescinds memos changing a lot!
Guidance on Restrictive Covenants
On February 14, 2025, newly appointed National Labor Relations Board Acting General Counsel William Cowen issued a General Counsel memorandum rescinding several memoranda issued by prior NLRB GC Jennifer Abruzzo. Among of rescinded memoranda were GC 23-08 and GC 25-01 related to restrictive covenants. Acting GC Cowen's rescission of these memoranda signals a shift in the NLRB's approach to restrictive covenants.
Issued on May 30, 2023, GC 23-08 was titled "Non-Compete Agreements that Violate the National Labor Relations Act." The memo articulated former General Counsel Abruzzo's belief that non-compete agreements interfere with employees' exercise of rights under Section 7 of the National Labor Relations Act (NLRA). Further, Abruzzo encouraged the NLRB to declare that the proffer, maintenance, and enforcement of restrictive covenants violates Section 8(a)(1) of the NLRA "unless the provision is narrowly tailored to special circumstances justifying the infringement on employee rights."
Then, on October 7, 2024, Abruzzo issued GC Memorandum 25-01, titled “Remedying the Harmful Effects of Non-Compete and ‘Stay-or-Pay’ Provisions that Violate the National Labor Relations Act.” In the memo, Abruzzo argued that "stay-or-pay" provisions—those that require employees to repay the employer if they leave before a specific time—were presumptively unlawful. She then proposed a framework for analyzing stay-or-pay provisions and argued that "make-whole" relief was the appropriate remedy for unlawful non-compete provisions. By way of an example, "make-whole" relief could include awarding the difference in pay from a higher-paying job that the employee did not pursue because of the restrictive covenant or paying an employee lost wages for the period the employee was out of work due to the restrictive covenant. Abruzzo also recommended that the NLRB revise its standard notice to inform employees that they could be entitled to such forms of relief. Abruzzo also urged the Board to order employers to pay an employee's legal fees and costs when it was determined the employee was subject to an unlawful non-compete agreement.
So what does the recission of GC 23-08 and GC 25-01 mean for employers? Although there have been some rulings on complaints involving restrictive covenants with mixed results, the NLRB did not address the ultimate questions regarding the lawfulness of non-compete and non-solicitation provisions before the end of the Biden administration. The rescission of the Abruzzo memos makes it less likely that a new general counsel will pursue complaints against employers based on their use of restrictive covenants. Moreover, with the possibility of a majority-Republican NLRB in the future, it is unlikely that the Board would rule in a manner consistent with Abruzzo's memos if the issue were before them.
Still, employers should understand the risks associated with imposing non-compete and non-solicitation covenants for non-supervisory employees subject to the NLRA. Since supervisory employees are not subject to the NLRA, any restrictive covenants employers implement for such employees are likely to receive less scrutiny. Even with less scrutiny, employers should exercise caution. Employers should tailor restrictive covenants to protect the employer's legitimate business interests, and stay informed of state laws that govern the enforceability of restrictive covenants.
Commentary by: Raylea Stelmach
Edited by:
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