Current State of Restrictive Covenants in Employment: Impact of a New Administration, Mitigating Risk of Noncompliance

Description

The new administration has indicated early on that it will be taking a more pro-business approach when it comes to restrictive covenants than the preceding administration as demonstrated by the FTC's motions to stay its appeals of the rulings blocking its 2024 noncompete rule and the rescission of key memos by the former NLRB General Counsel related to restrictive covenants.

The federal government recently filed motions to stay its appeals in the Fifth and Eleventh Circuits with Chairman Andrew Ferguson explaining that the Commission "needs to decide whether it's a good idea" and "in the public interest to continue defending this rule." Still, Ferguson has questioned whether unreasonable and broad noncompete agreements might still harm competition in labor markets and has launched a task force that will focus on enforcing federal antitrust laws to protect competition in labor markets, including targeting unreasonable noncompete agreements and no-poach and non-solicitation agreements.

In addition to the action being taken by the FTC, the NLRB General Counsel William Cowen rescinded several memos issued by former NLRB General Counsel Jennifer Abruzzo, including those related to restrictive covenants: (1) GC 23-05 that sought to expand the Board's McLaren Macomb decision that ruled most standard confidentiality and non-disparagement clauses in severance agreements are unlawful under the NLRA; (2) GC 23-08 that found that noncompete agreements generally violate the NLRA with limited exceptions; and (3) GC 25-01 that sought to expand financial remedies for employees subject to noncompete and "stay or pay" agreements.

With such action, employers are left wondering whether and how to use restrictive covenants to govern employee relationships, especially since more states are introducing and/or passing regulations limiting restrictive covenant use. Counsel should understand how to help their employer clients navigate this uncertainty.

Listen as our expert panel provides a comprehensive overview of the state of restrictive covenant regulation under the new administration and offers best practices for helping employers minimize risk of noncompliance.