The National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo issued a memorandum this week titled "Remedying the Harmful Effects of Non-Compete and 'Stay-or-Pay' Provisions that Violate the National Labor Relations Act." In the memo, Abruzzo stated that she intends to urge the board to not only find certain noncompetes and "stay-or-pay" provisions unlawful, but also remedy any harmful effects caused by such provisions.
As we have previously covered in EmployNews, the NLRB’s general counsel has argued that most noncompete agreements violate Section 7 of the National Labor Relations Act (NLRA) and she has pledged to invalidate nearly all post-employment noncompete agreements. This most recent memo further argues that noncompete agreements inhibit employees from exercising their rights to improve working conditions, such as finding better jobs or leveraging their options to obtain a raise. Importantly, since the NLRB’s jurisdiction only includes employees who are eligible to be members of a bargaining unit, the memo’s scope only applies to non-managerial employees and would not impact agreements with higher-level employees.
Like noncompete agreements, the memo attacked "stay-or-pay" provisions. These types of provisions refer generally to "any contract under which an employee must pay their employer if they separate from employment, whether voluntarily or involuntarily, within a certain timeframe." Typically, stay-or-pay provisions include training repayment agreements, educational repayment contracts, and sign-on bonuses tied to a mandatory stay period. In the memo, Abruzzo argues that these provisions likewise infringe upon Section 7 rights as they restrict employee mobility and may discourage protected concerted activities.
To be permissible under the memo, these provisions must be entered into fully voluntarily by employees and serve a distinct business interest in recouping the cost of optional benefits bestowed on employees. Abruzzo will "urge the Board to find that any provision under which an employee must pay their employer if they separate from employment, whether voluntarily or involuntarily, within a certain timeframe is presumptively unlawful," according to the memo.
Such agreements also must have a reasonable and specific repayment amount and a reasonable stay period. In order to rebut the presumption, employers will need to prove that the provision was made for a legitimate business interest and be narrowly tailored such that "it is voluntarily entered into in exchange for a benefit, has a reasonable and specific repayment amount, has a reasonable 'stay' period; and does not require repayment if the employee is terminated without cause."
The memo urges that employers should not only rescind unlawful noncompete and stay-or-pay agreements, but also compensate employees for any financial losses that they incurred as the result of the agreements. Specifically, Abruzzo suggests that make-whole relief should be sought for employees impacted by these agreements, including reimbursement for lost wages or costs due to restricted job opportunities.
Abruzzo advises that employers will be granted a 60-day cure period, beginning on October 7, 2024, to review and adjust any existing stay-or-pay provisions that do not comply with the outlined requirements. While this guidance may not represent the official position of the entire NLRB, it does carry weight. Employers should continue to assess any existing employment agreements to determine if there are any provisions that might be impacted by this guidance as there will likely be an increase in NLRB investigations on these topics.
The general counsel’s memorandum serves as a good reminder for employers to work with legal counsel to understand the risks your organization might face and determine whether any such agreements might result in financial penalties under this guidance. Like noncompete agreements, repayment agreements such as stay-or-pay provisions should be carefully drafted to necessarily protect legitimate business interests.
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