On October 7, 2024, the General Counsel for the National Labor Relations Board (“NLRB”) issued a memorandum offering her perspective on damages employers may face when enforcing allegedly unlawful non-compete agreements, and further, her belief that “stay-or-pay” provisions violate employees’ labor rights. Employers utilizing non-compete agreements and stay-or-pay provisions should be cognizant of the General Counsel’s position on these issues, particularly in the event they encounter an NLRB investigation.
May 2023 Memo
In May 2023, the General Counsel issued a memo explaining that she believed the maintenance and enforcement of non-compete agreements for non-management employees violates employees’ labor rights in all but rare circumstances. The memo primarily covered non-compete agreements—where an employee agrees that it will not work for a competitive employer for a period of time following the conclusion of employment—rather than agreements prohibiting solicitation of customers. However, the General Counsel did indicate that no-poach agreements—where an employee agrees not to solicit its co-workers following the conclusion of its employment—may violate employees’ labor rights, as well.
A copy of the May 2023 memo can be accessed here.
October 2024 Memo
On Monday, October 7, the General Counsel released a new memo, discussing damages and remedies employers might face for maintaining and enforcing non-compete agreements, and describing her belief that certain stay-or-pay provisions violate employees’ labor rights.
- Damages for Non-Compete Agreements
Upon reiterating her positions espoused in the May 2023 memo, the General Counsel also discussed potential remedies and damages she believes employers should be liable for if the NLRB determines the employer maintained and enforced an unlawful non-compete agreement. Notably, the General Counsel stated that if an employee demonstrates that they were deprived of a job with better compensation due to an allegedly unlawful non-compete agreement, she believes the employer should compensate the employee for the difference between the compensation the employee would have received, and the compensation the employee actually received.
The General Counsel also discussed additional harms and costs that the employer should be liable for when an employee complies with an unlawful non-compete agreement. These costs could be significant, and may include wages an employee lost due to being out of work because of an allegedly unlawful non-compete agreement, costs for relocating outside of a geographic region and costs for training to join a new industry.
2. Stay-or-Pay Provisions
In addition to non-compete agreements, the General Counsel also proposed that certain stay-or-pay provisions violate employees’ labor rights. Stay-or-pay provisions include “any contract under which an employee must pay their employer if they separate from employment, whether voluntarily or involuntarily, within a certain timeframe.” Notable examples of stay-or-pay provisions are relocation agreements and training repayment agreements.
The General Counsel explained that maintaining stay-or-pay provisions could discourage employees from exercising their labor rights. Accordingly, she is requesting that the NLRB find that most stay-or-pay provisions are presumptively unlawful, unless the employer can show: (1) the stay-or-pay provision was voluntarily entered into in exchange for a benefit; (2) the stay-or-pay provision had a reasonable and specific repayment amount; (3) the stay-or-pay provision had a reasonable “stay” period; and (4) the stay-or-pay provision did not require repayment if the employee was terminated without cause.
The General Counsel has offered employers 60 days from October 7, 2024 to cure any pre-existing stay-or-pay provisions that it believes are unlawful under this framework. Otherwise, she intends to prosecute stay-or-pay provisions that she believes are unlawful.
Much like non-compete agreements, the General Counsel intends to seek significant remedies and damages from employers maintaining unlawful stay-or-pay provisions—particularly when those provisions are involuntarily. In addition to rescinding the provisions, the General Counsel may seek to nullify any debt that employees have incurred by entering into the provisions. Employers also may be obligated to halt enforcement of the provisions, and to compensate employees for payments made to comply with those provisions. Last, employers could be obligated to compensate employees if the stay-or-pay provision prevented them from accepting a more financially beneficial position.
Implications for Employers
The General Counsel’s memos are not law, but rather, what the General Counsel desires to make law. Nevertheless, employers must be aware of the implications of these memos going forward. The General Counsel’s interest in these agreements and provisions means that NLRB offices will be seeking opportunities to review employers’ non-compete agreements and stay-or-pay provisions. Accordingly, maintenance of these agreements and provisions puts employers at risk of facing significant NLRB investigations into their workplaces.
Moreover, following an investigation, the General Counsel may prosecute an agreement or provision that she believes is unlawful. Indeed, the General Counsel specifically expressed her intent to prosecute stay-or-pay provisions that are unlawful under her proposed framework (assuming they are not cured during the 60-day cure window). She may also seek to do the same with non-compete agreements, as well.
Accordingly, employers should give thought to their own non-compete agreements and stay-or-pay provisions to determine the best course of action for their workplaces.
The General Counsel’s memo can be accessed here.
