By: Brett A. Ekes
As a sign of things to come with the new administration taking office this year, in February 2024, the National Labor Relations Board’s Acting General Counsel, William B. Cowen, rescinded dozens of General Counsel Memorandums issued by his predecessor in the Biden Administration, Jennifer Abruzzo. (Note that GC Memos are nonbinding statements asserted by the NLRB General Counsel as guidance on how the NLRB should interpret the National Labor Relations Act.)
Among the rescinded memos are ones related to Severance Agreements and Non-Compete Agreements. The rescinded memoranda deemed as violations of the National Labor Relations Act two categories of restrictive covenant agreements: (1) non-compete agreements in employment contracts and severance agreements and (2) stay or pay agreements whereby employees are required to remain employees for a certain period of time or reimburse the employer. Cowen’s action reversed the stance of the NLRB taken by Abruzzo who argued that such agreements interfered with employees’ rights under Section 7 of the NLRA.
The rescinded memo declared that the proffer, maintenance, and enforcement of non-compete agreements in employment contracts and severance agreements violated the NLRA, interfering with employees’ exercise of rights under Section 7 of the NLRA, except in limited circumstances; and that stay-or-pay agreements violated Section 8(a)(1) of the NLRA unless they were narrowly tailored to minimize any interference with employees’ Section 7 rights, and the employer could meet a specific test for whether the provision advanced a legitimate business interest.
What Is The Impact of This for Employers?
In Wisconsin, restrictive covenant agreements are lawful and still governed by Wis. Stat. § 103.465, however employers should be mindful of the decisions made by the NLRB in determining the lawfulness of their own restrictive covenants. The rescission of the former GC’s memos probably makes it less likely that the NLRB will now rule in a way that is in accordance with the rescinded memos. However, employers still must be mindful of conflicting decisions by the NLRB administrative law judges addressing these issues.
Employers should understand and balance the risks associated with proffering and enforcing restrictive covenants. Additionally, employers should exercise some caution in drafting and implementing these types of agreements, to ensure that they are narrowly tailored to comply with existing Wisconsin law, while also protecting their legitimate business interests, including with respect to confidential information, customer goodwill and unfair competition.
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