New Administration, New Labor Policies: How Changes to Federal Guidance May Benefit California Nonprofits

The National Labor Relations Board (NLRB) is an independent federal agency responsible for enforcing U.S. labor laws. It oversees private-sector employees’ rights to form unions, engage in collective bargaining, and even draft policies or severance agreements. California nonprofit organizations fall under the jurisdiction of the NLRB even if they are not unionized.

Changes in Presidential administrations often influence the NLRB’s positions, as board members are appointed by the sitting president and typically reflect the administration’s labor policies. This year seems no different. On February 14, 2025, the NLRB’s Acting General Counsel, William B. Cowen, rescinded several memoranda issued during the Biden administration. This action followed the Executive Order issued by President Trump titled “Initial Rescissions of Harmful Executive Orders and Actions,” which mandated the review and rescission of certain policies from the previous administration.

General Counsel memoranda do not have the authority of law or regulation. Rather, the memoranda are issued to NLRB field offices and Washington offices by the General Counsel to provide policy guidance. The rescinding of the Biden era memoranda, suggest a significant shift in the NLRB’s priorities.

Here are some of the key changes affecting California nonprofits:

1. Severance Agreements: The rescission of Memorandum GC 23-05 withdraws prior NLRB guidance restricting non-disparagement clauses and confidentiality agreements in severance agreements. In a severance agreement, the employer typically offers the employee a sum of money in exchange for the employee relinquishing certain rights, such as the right to sue the employer. The memo had advised that the use of non-disparagement and confidentiality provisions in severance agreements violated employees’ rights under section 7 of the National Labor Relations Act (NLRA) as they could prevent employees from discussing workplace misconduct, discrimination, or union-related activities. The rescission action suggests, instead, a more lenient approach by the NLRB on including these types of provisions in severance agreements.

2. Electronic Monitoring and Workplace Surveillance: The withdrawal of Memorandum GC 23-02 signals a more lenient approach to protections for employees regarding workplace surveillance and electronic monitoring. Specifically, the memo stated that monitoring employees through AI-productivity tracking, keystroke logging, and facial recognition software could have a chilling effect on employees’ ability to engage in protected activities.

3. Non-compete Agreements: Memoranda GC 23-08 and GC 25-01 had stated the NLRB’s interpretation that non-compete agreements in employment contacts and severance agreements were violations of the NLRA. The NLRB had instructed that the provisions restricted employees’ ability to seek better job opportunities and discouraged collective action. California, however, has separate laws prohibiting non-compete agreements except in limited situations.

4. Unfair Labor Practices: Memoranda GC 21-06 and GC 21-07 had suggested expanded consequences for employers found guilty of unfair labor practices. Specifically, they supported employees seeking remedies for emotional distress, reinstatement rights, and funding for organizing efforts. The rescission of these memoranda hint that the NLRB will likely take a more lenient approach in penalizing employers for unfair practice charges in the future.

Overall, the rescission of the memoranda allow greater employer control over the workplace, at least from the standpoint of federal NLRB enforcement. Nonprofit organizations should bear in mind this shift when assessing the risk of taking certain employment actions, such as including certain details in severance agreements. At the same time, the substantial protections afforded employees under California law remain, which nonprofits must continue to consider when making employment decisions. LCW attorneys are closely monitoring President Trump’s Executive Orders and any associated developments. Please also see LCW’s Executive Order Summaries here.

Permitting Third Party Discovery In Employee Arbitration Agreements

In Vo v. Technology Credit Union, Thomas Vo was hired by Technology Credit Union (TCU) in 2020 and was required to sign an arbitration agreement at that time. TCU terminated Mr. Vo after he contracted COVID-19 and was facing long-term health issues. Mr. Vo sued TCU for wrongful termination, discrimination, and harassment under the Fair Employment and Housing Act (FEHA).

TCU sought to enforce arbitration on Mr. Vo’s claims based on the signed arbitration agreement. Mr. Vo argued the arbitration process was unfair because it restricted his ability to perform discovery and collect evidence from third parties before the hearing.

The trial court denied TCU’s motion to compel arbitration, ruling that the arbitration agreement was unconscionable as it was unfairly one-sided. The court referenced Aixtron, Inc. v. Veeco Instruments Inc. (2020), which determined that the JAMS arbitration rules in place at the time did not permit arbitrators to compel third-party discovery before a hearing. The judge concluded that this restriction could prevent Mr. Vo from securing critical evidence to support his claims, making the arbitration agreement fundamentally unfair.

The California Court of Appeal reversed the trial court’s ruling. The appellate court relied on the California Supreme Court’s recent decision in Ramirez v. Charter Communications, Inc. (2024), which clarified that arbitration agreements should be interpreted to give arbitrators broad discretion in allowing necessary discovery, including from third parties. The court took a pro-arbitration approach, emphasizing that arbitration rules should be read expansively to ensure fair access to evidence and due process.

As a result, the appellate court directed the trial court to grant TCU’s motion to compel arbitration and pause the lawsuit. This ruling reinforces the enforceability of arbitration agreements, particularly those structured to allow arbitrators to permit necessary discovery.

Employers should ensure their arbitration agreements are crafted carefully to explicitly allow for reasonable discovery to avoid enforceability challenges. Regularly reviewing arbitration agreements is key to ensure enforceability and keep up with evolving legal requirements.  Vo v. Technology Credit Union, 2025 WL 1234567 (Cal. Ct. App. 2025).

Considerations For Nonprofit Organizations Planning To Allow Third Parties To Use Their Facilities

Renting facility space can be a great way for a nonprofit organization to generate additional revenue. However, nonprofits must carefully consider the following factors before making these arrangements:

1. Utilizing a Lease or a Facilities Use Agreement (FUA)

A lease is an agreement granting a third party the exclusive right to occupy the nonprofit’s real property for a specific period. The lease typically gives the tenant exclusive possession and use of the property, meaning the tenant may generally exclude the owner from the premises. A leasehold interest is typically transferable and irrevocable, unless otherwise stated in the lease agreement.

In contrast, a Facilities Use Agreement (FUA) typically conveys a license to use the facility for an event or a certain period of time, rather than providing a leasehold interest. Unlike a lease, an FUA does not grant extensive property rights. Instead, it permits a third party to use the nonprofit’s property for a specified purpose. A FUA is usually non-transferable, revocable, and can be either exclusive or non-exclusive.

Ultimately, the language of the FUA determines the rights a nonprofit will grant to the third party. If the nonprofit intends to provide a license for temporary use rather than an exclusive possessory interest, it should use an FUA rather than a lease.

2. Unrelated Business Income Tax (UBIT)

Unrelated Business Income Tax (UBIT) is a tax imposed on income generated by tax-exempt organizations from business activities that are not substantially related to their exempt purpose. This is important because excessive UBIT may jeopardize a private nonprofit’s tax-exempt status.

Determining whether income from facility use is subject to UBIT is highly fact-specific and depends on multiple factors.

Ways to Avoid UBIT:

• • Rent to users aligned with the nonprofit’s educational purpose or mission (e.g., nonprofit organizations or educational groups).
  • Charge reasonable fees for facility use rather than excessive market-rate rents.
  • Ensure that facility rentals do not constitute a substantial or disproportionate portion of the nonprofit’s gross income.
  • Avoid providing substantial services to facility users.
    • Acceptable incidental services: Heating, lighting, trash collection.
    • Services that may trigger UBIT: Event staffing, catering, event coordination.

Please be aware that renting facilities to for-profit or non-charitable entities may jeopardize a nonprofit’s welfare property tax exemption. Nonprofits should consult with their legal counsel prior to making these types of arrangements.

3. Insurance and Indemnification

If a nonprofit allows a third party to use its facilities, the contract should include indemnification and insurance provisions to protect the nonprofit and to reduce potential liability and risk.

An indemnification provision can protect the nonprofit from lawsuits or claims related to incidents that occur during the third party’s use of the facility. The FUA should also include a duty to defend clause, requiring the third party to provide a defense for the nonprofit for any litigation or claims asserted against the nonprofit.

Users should also be required to maintain adequate insurance coverage based on the type of use of the nonprofit’s facilities and provide proof of that insurance before they use the facilities. Nonprofits should check with their broker to ensure that the user provides sufficient coverage. The nonprofit should ensure endorsements on the policies name the nonprofit as an additional insured and waive rights of subrogation against the nonprofit.

4. Termination

Nonprofits should ensure the FUA includes their right to terminate the FUA and stop the event at any time and for its own convenience, including during the event itself. This will give the nonprofit the right to immediately stop an event or use of its facilities if a user or that user’s guests or invitees are not following the nonprofit’s rules or are otherwise not complying with the FUA.

Final Considerations

Nonprofits should carefully evaluate these factors before agreeing to allow third parties to use their facilities. A well-drafted agreement is the best way to minimize risks and liability. Nonprofits should consult trusted legal counsel before entering into any agreements to ensure all potential risks are fully assessed.