NLRB General Counsel Jennifer Abruzzo issued Memorandum GC 25-01 on October 7, 2024, announcing her goal to remedy the alleged harmful effects she views inherent to overly broad non-compete and stay-or-pay provisions by imposing increasingly generous remedies.
This Memorandum follows her GC Memorandum, issued in May 2023, in which she announced that, generally, the proffer, maintenance, or enforcement of non-compete provisions for non-supervisory employees violates Section 7 of the National Labor Relations Act and urged the Regional Offices to challenge them. Complaints were issued in Region 9 (Cincinnati) in Juvly Aesthetics, and in Region 25 (Indianapolis) in J.O. Mory, Inc. Both cases alleged unlawful labor practices based in part on non-compete and non-solicitation clauses. Foretelling this recent Memorandum, the NLRB also challenged a training reimbursement policy in Juvly Aesthetics. Juvly settled without a determination by the NLRB. The administrative law judge in J.O. Mory, Inc. held the non-compete and non-solicitation clauses were overbroad and unlawful, and that decision remains pending for Board review.
Abruzzo Challenges Stay-or-Pay Provisions
Similarly, Abruzzo now targets stay-or-pay provisions which typically require that an employee who separates from employment must reimburse an employer for certain company paid benefits such as sign on bonuses, tuition reimbursement, training repayment, relocation expenses, or other cash payments should the employee separate from employment, voluntarily or involuntarily. She asserts that they allegedly infringe on the same Section 7 rights as do non-compete provisions because they dissuade employees from seeking improved working conditions elsewhere by imposing a financial hurdle if they were to quit their job to take a better one. They also chill concerted activity while employed. Employees subject to such provisions are less likely to engage in union organizing or advocating for workforce rights lest they not only suffer termination in retaliation they now also find themselves out of a job and owing a monetary debt to their employer.
Abruzzo Proposes Test to Determine Legitimate Stay-or-Pay Provisions
Abruzzo finds that any such stay-or-pay provision, even if entered into voluntarily, is presumptively an unlawful labor practice (ULP) under Section 7. However, employers may rebut that presumption if they can show that the stay-or-pay provision advances a legitimate business interest and is narrowly tailored to minimize interference with Section 7 rights. That can be demonstrated by meeting all of the following factors:
- The provision states it is voluntary. The stay-or-pay provision must state and be entered into voluntarily which means the employee was able to “freely choose” to enter into a stay-or-pay arrangement without any penalty, whether that be financial or an adverse employment action, should the employee decline. Training repayment provisions will meet this requirement only if the training is optional for the employee. If training is mandatory, any such stay-or-pay provision will not satisfy this requirement. Sign on bonus agreements will only satisfy this requirement if the employee is provided the option of agreeing to the stay-or-pay provision or deferring the payment until the end of the stay period.
- The provision contains a reasonable and specific repayment amount. The repayment amount must be no more than the expense incurred by the employer and it must be specified up front before the employee agrees to the arrangement.
- The provision sets forth a reasonable stay period. A reasonable stay period will be based on the facts and should be proportionate to the amount of the cost of the benefit.
- The provision states that repayment is not required if the employee is terminated without cause. The provision must effectively state that the repayment will not be enforced if the employee is terminated without cause.
Abruzzo recommends enhanced penalties beyond the make whole remedy
Abruzzo seeks to impose penalties not only for enforcing such provisions but also for those indirect harms that she argues occur by their very existence. In her view these provisions are “self-enforcing” as they may result in employees not taking advantage of other employment opportunities due to a non-compete provision or because quitting will trigger repayment of the debt under such provision, therefore resulting in a harmful financial impact on employee wages and benefits overall. Therefore, she urges that the general penalties for ULPs such as rescission, and even current “make whole remedies” may not be sufficient to remedy these “pernicious” harms wrought by non-compete agreements and stay-or-pay provisions.
She advocates any other current employee or even former employee employed during the six month period prior to the issuance of a complaint, should be permitted to come forward and demonstrate that he or she, too, was deprived of a better job opportunity as a result of the non-compete or stay-or-pay provision. Such employee would be entitled to be compensated by the employer for the difference in compensation and benefits between the employee’s current job and the alternative position for the period of time that the provision was effective if the employee could show:
- another better paying job was available,
- the employee was qualified for the job, but
- was discouraged from applying for or accepting the job because of the non-compete provision or a stay-or-pay provision.
She would impose the same remedy in instances where an employer’s anti-moonlighting provision discouraged the employee from seeking a second job. Employees should also be compensated for moving costs if they were forced to relocate outside of the same geographic reason and/or retraining costs to avoid violating a non-compete provision.
Proposed New 10(b) Notice
Finally, in both non-compete and stay-or-pay situations she recommends that the Board amend its standard notice posting required of employers subject to a complaint, to specifically alert employees, through a direct order to an offending employer to mail the alert to its employees, of these available remedies including compensation. Such notice shall further direct the employees to contact the NLRB Regional office during the notice period if they have evidence of being discouraged from pursuing or accepting other job opportunities, if upon separation of employment they faced difficulties in finding comparable employment, or are discouraged from seeking other employment due to a stay-or-pay provision.
60-Day Window to Comply and Rectify Stay-or-Pay Provisions
Finally, Abruzzo grants employers a 60-day “window” from the date of this Memorandum to cure any pre-existing stay-or-pay provision that advances a legitimate business interest in order to avoid the issuance of a complaint. Proposed cures include:
- If a stay-or-pay provision includes a repayment amount that is more than the benefit received by the employee, the employer must reduce it to an amount equal or less than the cost and notify the employee of the new repayment amount
- If a stay period is unreasonably long, the employer must shorten it to a reasonable length and notify the employee of the new stay period
- If the stay-or-pay provision requires repayment even if the employee is terminated for no cause, the employer must amend the provision and clarify that it does not cover no cause termination and notify the employee of the amendment
- If any proceeding is pending at the time of the issuance of this Memorandum, the employer must modify its demand for repayment within sixty days to comply with this test by (i) reducing the amount sought to no more than the value of the benefit conferred (ii) dismissing any claim if the stay was unreasonably long and the employee has already served a reasonable period stay period, or dismissing any claim if the employee was terminated for no cause.
For those preexisting provisions that do not advance a legitimate business interest, she will decline to prosecute if, within this 60-day window, the employer has canceled the debt owed, notified the employee that there is no longer an obligation to repay the debt obligation, retracted any debt collection enforcement action, and if the employee has paid any of the debt, returned those amounts to the employee.
Abruzzo fully intends to prosecute (i) any preexisting stay-or-pay provisions that do not meet the above tests and seek retroactive application and (ii) any proffer, maintenance, or enforcement of any unlawful stay-or-pay arrangement that is entered into after the issuance of this Memorandum.
What Employers Need to Consider Now
Abruzzo’s 60-day window ends December 6, 2024. Although her Memorandum is not binding law, she does emphatically announce her intended target and treatment of non-compete and stay- or-pay provisions. Given her predilection to target such provisions and the recent complaints filed by the Board, employers may want to assess their risk comfort level and immediately begin reviewing current stay-or-pay arrangements or policies, as well as non-compete provisions to assure they meet the proposed test and, if necessary, take corrective action as set forth above.
The recent positions taken by General Counsel Abruzzo targeting employment policies, along with the penchant for the Board to follow her recommendations and file complaints can be fraught with confusion and leave employers wondering what to do next.
