How Policy Changes at the NLRB Could Affect Severance and Noncompete Agreements

While rescinding policy memoranda issued by a prior administration’s general counsel is not unusual (and, in this case, is consistent with the overall approach of the Trump Administration to roll back actions taken by Biden appointees), if adopted by the Board those policy memoranda can have far-reaching ramifications.

Among those memoranda rescinded were:

• GC 23-05 on severance agreements.
• GC 23-08 and GC 25-01 on noncompete agreements.

By rescinding these memoranda, Cowen has signaled that he will no longer seek to enforce actions against employers based on violations of the policies expressed in the memoranda. The action may also mean that for parties with active matters before the NLRB relating to the rescinded memos, resolution may be faster and more employer-friendly.

With respect to severance agreements, former NLRB General Counsel Jennifer Abruzzo had taken the position that overly broad non-disparagement and confidentiality clauses often interfere with, restrain, or coerce employees’ exercise of Section 7 rights. As a result, many employers significantly narrowed these provisions in severance agreements with employees who are covered by the National Labor Relations Act (NLRA). By rescinding GC 23-05, Cowen has backed away from Abruzzo’s interpretation of the NLRA.

With respect to noncompete agreements, the now-rescinded memoranda had expressed the former General Counsel’s position that (1) nearly all noncompete provisions are overbroad and therefore interfere with the exercise of employees’ Section 7 rights, and (2) employees should be entitled to significant damages relating to their misuse. The Acting General Counsel’s actions in rescinding these memoranda are also consistent with positions taken by the new chair of the Federal Trade Commission, Andrew Ferguson, disapproving the noncompete ban passed under former chair, Lina Khan.

While companies may now have more leeway in enforcing their severance and noncompete agreements, for in-house counsel, this change also means that they will have to ensure that their companies comply with the patchwork of state laws relating to the noncompete agreements in jurisdictions where their employees live and work. No doubt, a silver lining with a potentially onerous twist.