On February 14, 2025, NLRB Acting General Counsel William B. Cowan rescinded a number of active General Counsel Memoranda citing an increasing “backlog of cases [grown] to the point where it is no longer sustainable.” Among those rescinded were a pair of memos issued by recently ousted NLRB General Counsel Jennifer Abruzzo that declare non-compete agreements between employers and workers illegal under the National Labor Relations Act (the “Act”). The rescission of these memos and other Biden administration policy memoranda reflect a marked shift in priorities of the agency under the Trump administration towards more pro-employer positions.
GC Memo 23-08, issued on May 30, 2023 (“Abruzzo Memo I”), interpreted non-competes in employment agreements and severance agreements as violative of workers’ rights under Sections 7 and 8(a)(1) of the Act. GC Memo 25-01, issued on October 7, 2024 (“Abruzzo Memo II”), reaffirmed the agency’s hostility towards non-compete agreements by affirming its earlier interpretation and extending its analysis to “stay-or-pay” provisions, in which an employee must pay their employer if they separate from employment. Abruzzo Memo II further advocated for a shift to an expansive “make-whole relief” remedial framework for employees harmed by supposedly unlawful employment agreements. Abruzzo was dismissed by President Trump shortly after taking office as widely expected.
As we previously covered in this blog, Abruzzo Memo I represented the agency’s expansion of its enforcement activity to non-competes and other restrictive covenants, seemingly in coordination with the Federal Trade Commission’s Final Non-Compete Clause Rule,[1] by linking restrictive employment covenants to an unlawful chilling effect on activity protected under Section 7 of the Act. Although NLRB General Counsel Memoranda lack binding legal authority, the memos generally outline the agency’s policy guidance and signify where its enforcement priorities lie.
The NLRB’s record in enforcement actions following the issuance of Abruzzo Memo I, however, has been decidedly mixed. An early victory came in June 2024, in J.O. Mory, Inc. when an NLRB administrative law judge found for the first time that non-compete and non-solicitation provisions infringed Section 7 rights.[2] That case involved the termination of a union “salt,” a union organizer who surreptitiously gains employment with a non-union employer for the purpose of organizing their employees, who was fired the day after his organizing efforts were discovered. The complaint alleged that employee was fired in retaliation for his organizing activities, and that the restrictive covenants in the employment agreements effectively chilled other employees from engaging in salting and other union and protected activities. The ALJ agreed, finding that the threat of money damages and legal fees for potential breaches of non-compete and non-solicitation provisions unlawfully chill employees’ Section 7 activities both during and after their employment.
The ALJ ordered the employer to rescind its non-compete and non-solicitation agreements, provide backpay to the former employee, and pay compensation for any pecuniary harm resulting from the unlawful employment action. The J.O. Mory, Inc. decision, however, was not appealed to the NLRB and had no resulting precedential value. Two other NLRB enforcement actions against non-competes settled before a final ruling was reached.[3]
The agency suffered a recent blow in its efforts to utilize the NLRA to challenge non-compete agreements in NTT Data, when the presiding ALJ failed to find a violation of an employee’s protected Section 7 rights through the employer’s use of non-compete and non-solicitation provisions, criticizing the challenge as “a novel legal theory.”[4] The ALJ, relying on earlier NLRB precedent, concluded that concerted employee resignations are not protected activities and that neither the non-compete nor the non-solicitation provisions in the employment agreements at issue could be reasonably interpreted to prohibit Section 7 activities.[5] The NLRB’s defeat in NTT Data came on October 15, 2024, only days before GC Abruzzo issued Abruzzo Memo II, expanding upon her position statement on purported overbroad non-compete agreements in Abruzzo Memo I.
As stated above, the rescission of these memos and other Biden administration policy memoranda reflect a marked shift in priorities of the agency towards more pro-employer positions. Although federal agencies such as the NLRB and FTC maintain their authority to attack individual restrictive covenants, we are less likely to see such wide-reaching agency rulemaking on non-competes in the foreseeable future. Unless Congress steps in to take action aimed at restrictive employment covenants, individual states will remain the hotbed of legal change on the issue.
[1] On August 20, 2024, the United States District Court for the Northern District of Texas in Ryan, LLC v. FTC issued a ruling setting aside the FTC Rule banning non-competes. We previously covered the Northern District’s ruling here. The Rule remains “set aside” during the FTC’s appeal to the Fifth Circuit. A similar case is on appeal in the 11th Circuit, where the district court enjoined the Rule’s application to the plaintiff only. For more on this case, please see here.
[2] See J.O. Mory, Inc. and Indiana State Pipe Trades Assoc., 25-CA-309577 and 25-CA-336995 (NLRB 6/13/24).
[3] Harper Holdings, LLC d/b/a Juvly Aesthetics, Case No. 09-CA-300239, NLRB Region 9; see also Planned Companies, N.L.R.B. Reg’l Dir. en banc, No. 22-CA-321532, Dec. 31, 2024.
[4] See NTT Data Americas Inc. and Steven D. Melcher Jr., Case No. 07-CA-320089 (NLRB 10/7/24).
[5] Id; see also Stericycle, 372 NLRB No. 113 (2023) (viewing the challenged work rule from the viewpoint of an employee who is “subject to the rule and economically dependent on the employer, and who also contemplates engaging in protected concerted activity.”)