On October 7, 2024, NLRB General Counsel Jennifer Abruzzo announced to her staff and the public that she intends to prosecute employers for “Stay-or-Pay” employment agreements, agreements that require a new employee to repay outlays for training if the employee leaves within a certain timeframe after being hired. The General Counsel reasons that such provisions are “presumptively unlawful” under Section 7 of the National Labor Relations Act, which protects the rights to unionize or engage in protected concerted activity, because they force employees to remain in jobs they would otherwise leave, or deter an employee from union activity so as not to risk termination and the repayment obligation.
From the GC’s perspective, stay-or-pay agreements are unlawful unless they advance a legitimate business interest and are narrowly tailored. To be lawful, a stay-or-pay provision must be: (1) voluntarily entered into in exchange for a benefit; (2) have a reasonable and specific repayment amount; (3) have a reasonable “stay” period. The first requirement is met, for example, when a new employee voluntarily opts for tuition benefits to further education not specifically required for the job. When training is mandatory for the job, the costs associated with that training cannot be part of a stay-or-pay contract. The second requirement is met when the amount is defined and no more than the actual costs to the employer. The third requirement depends on the circumstances in each case. Higher cost benefits would require longer stay periods before a clause is triggered. Lower cost benefits would allow for shorter stay periods. A clause that requires an employee to repay any costs when the employee is terminated without cause would be per se unlawful.
As a remedy for an unlawful clause, the General Counsel would pursue requiring the employer to rescind the provision and notify employees that the “stay” obligation has been eliminated and that any debt will not be enforced against the employee. Where employees have already paid based on an unlawful provision, the employer would be require to reimburse those payments. In an expansive stroke, the General Counsel envisions ordering remedies for theoretical situations -- when an employee asserts that a stay-or-pay kept him from a new job opportunity. In that situation, the employer must compensate employees for the difference in pay or benefits where an employee can show that: (1) there was a vacancy available for a job with a better compensation package; (2) they were qualified for the job; and (3) they were discouraged from applying for or accepting the job because of the stay-or-pay provision.
This is a novel effort for the NLRB to further apply a 1935 law into the current landscape. This effort goes hand-in-hand with the General Counsel’s effort to attack non-compete agreements based on a similar theory that they restrict employee mobility. For now, this does not mean all stay-or-pay clauses need to be jettisoned. However, it does mean they will be under increased scrutiny. The likelihood is that unfair labor practice charges will be filed and pushed forward to the Board to decide whether it agrees with the General Counsel’s view. Employers who naturally want to use these clauses to protect their investment in new employees and limit turnover would be wise to review existing clauses with their labor counsel.
