Written by Nicholas M. Reiter, Jennifer G. Prozinski and Karel Mazanec from Venable LLP on December 19, 2024
As President-elect Trump continues to announce appointments of key officials for his incoming administration, many employers are left wondering: How will the Trump administration’s policies affect the day-to-day practices and operations of employers and their workforces?
Recent elections have demonstrated that a change in party control typically results in sweeping shifts in labor law and policy. Next year will be no different. Trump’s second administration is widely expected to reverse many of the policies, rules and precedents of the National Labor Relations Board (NLRB) established under the current administration, and reinstate rules, policies, and law enacted by the NLRB under his first administration.
This article explores some of the anticipated changes in labor law, including the rules governing non-competition, confidentiality, and non-disparagement agreements and the lawful classification of independent contractors.
Noncompetition and Stay-or-Pay Agreements
Under the Biden administration, the NLRB and the Federal Trade Commission (FTC) have taken aggressive steps to curb the use of non-competition and stay-or-pay agreements by employers. In April 2024, the FTC issued a rule that would have amounted to a near total nationwide ban on employee non-competition agreements.
As we have previously reported, this rule was challenged in multiple lawsuits and vacated on a nationwide basis in August 2024 by U.S. District Court for the Northern District of Texas, just weeks before it was scheduled to take effect. The FTC has since appealed this and another decision from a Florida federal court, seeking to reinstate the rule. The Trump administration is unlikely to support the FTC’s current efforts.
In December, Trump announced that he would elevate Commissioner Andrew Ferguson to FTC chair, replacing outgoing chair Lina Khan, the lead architect of the non-compete ban. Trump also said he would nominate Republican lawyer Mark Meador as a commissioner. It is likely that Ferguson will direct the Department of Justice (DOJ) to withdraw the FTC’s pending appeals seeking reinstatement of the rule, and/or that the FTC will vote to repeal or amend the rule. Either way, the FTC’s non-compete ban appears unlikely to survive.
The NLRB under the current administration has also pushed to limit employers’ use of non-competition and similar agreements. The current NLRB general counsel, Jennifer Abruzzo, issued a memo on October 7, 2024 asserting that non-competition and stay-or-pay agreements (such as training and tuition reimbursement agreements) chill employee rights under the National Labor Relations Act (NLRA).
In the memo, Abruzzo advocated for a new NLRB standard that would render most non-compete and stay-or-pay agreements unlawful, and encouraged prosecution of employers that require employees to sign such agreements, including pursuit of full monetary damages for any resulting financial harm suffered by the employees.
These NLRB policies are unlikely to continue under the Trump administration. Among other reasons, Trump is expected to swiftly replace Abruzzo. It is likely that the president-elect’s new acting NLRB general counsel will rescind this and other similar general counsel memos, adopt a more lenient position towards the enforceability of non-competition agreements under the NLRA, and potentially withdraw any pending NLRB enforcement action pursuing the policies announced in the Abruzzo memo.
Severance and Other Employee Agreements
Under Biden’s administration, the NLRB ruled that employers generally cannot include non-disparagement and broad confidentiality provisions in severance agreements with non-supervisory employees. The NLRB reasoned that such provisions violate the NLRA because they have a tendency to interfere with, restrain, and/or coerce an employee from exercising the employee’s Section 7 rights to speak about the severance agreement and discuss terms and conditions of their employment with other employees, former employees, unions, government agencies, and certain third parties.
In a subsequent policy memorandum, Abruzzo announced the NLRB’s intent to apply this new standard retroactively, to a wide variety of employee agreements and policies besides severance agreements, and to challenge the enforceability of other types of provisions, such as restrictive covenants, broad general releases of liability, and cooperation clauses requiring the employee to assist the employer in current or future investigations and proceedings. Trump’s NLRB general counsel replacement will likely promptly rescind Abruzzo’s policy memorandum and scrap the NLRB’s current plans to expand restrictions on confidentiality, non-disparagement and other similar agreements.
During his term in office, Trump will have the opportunity to appoint two members to the NLRB, shifting the composition from a Democrat to a Republican majority. Under Republican control, the NLRB is likely to reinstate the previous Trump-era precedent established in Baylor University Medical Center and IGT d/b/a International Game Technology, under which confidentiality and non-disparagement clauses are generally deemed enforceable absent some other evidence of employer coercion, such as a finding of wrongful termination or an employer’s animus towards protected employee activity.
Independent Contractor Classifications
Under the Biden administration, the NLRB significantly narrowed the scope of who may properly be classified as an “independent contractor” rather than an employee under the NLRA, effectively expanding the number of workers subject to NLRA protections. In its The Atlanta Opera Inc. decision, issued in June 2023, the NLRB overturned a Trump-era standard that emphasized the role of a worker’s “entrepreneurial opportunity” in its analysis of independent contractor status, and instead replaced it with a more employee-friendly test applying a variety of traditional common law factors analyzed under a totality of the circumstances.
Under the Atlanta Opera standard, the NLRB considers a worker’s entrepreneurial opportunity equally in conjunction with the other traditional common-law factors, including the degree of control over the worker, whether the worker is engaged in their own distinct business, the skills required to perform the work, whether the work is integral to the employer’s business, the method of payment, the length of the work relationship, and other factors—with no one factor being determinative.
Under Trump, the NLRB may revert to its previous standard emphasizing a worker’s entrepreneurial opportunity. If so, the new rule would make it easier for employers to classify workers as independent contractors. Employers often prefer the independent contractor classification because, unlike employees, independent contractors generally are not subject to minimum or overtime wage requirements or entitled to health insurance and similar benefits. This development may be particularly relevant to employers who rely on “gig workers” that must be classified as employees rather than contractors under the current NLRB rules.
Practical Implications for Employers
Employers would be wise to closely monitor the changes in labor law that are expected under Trump’s second administration. Some of these changes, such as shifts in NLRB and FTC policy and enforcement priorities, will likely occur soon after Trump takes office.
Other changes, such a reversal of Biden-era precedent, will likely not occur until after Trump is able to secure confirmation of key agency officials. The composition of the NLRB, for example, will not switch to a Republican majority until after the Senate confirms his appointments, and it may be a while yet before the new NLRB will have an opportunity to overturn precedent from this administration. This means that many NLRB rules established under the Biden administration will likely stay in effect well into Trump’s presidency, even if the new administration deprioritizes enforcement of Biden-era rules.
Employers seeking to use employee non-competition agreements should keep a close eye on the pending appeals of the FTC rule, but they are not prohibited from using such agreements under federal law in the meantime. Regardless of whether the nationwide injunction remains in place and whether FTC rule is ultimately abandoned under the Trump administration, prudent employers will continue to review applicable state and local law governing non-competition and other restrictive covenants, which varies widely depending on the jurisdiction.
Employers who rely on broad confidentiality and non-disparagement clauses in their severance and other employee agreements should evaluate the risks of potentially violating the NLRB’s current rules and the likelihood that the rules will be reversed during President-elect Trump’s administration. Similarly, employers who use independent contractors should evaluate the risks of failing to comply with the current Atlanta Opera standard, which remains the law until such a time that the standard is rescinded or revised by the NLRB under Trump’s administration.
