On October 7, 2024, the Office of the General Counsel issued a new memorandum, GC 25-01, expanding her prosecutorial agenda to remedy what she sees as the harmful effects of non-compete agreements and so-called “stay-or-pay” provisions that violate the National Labor Relations Act (NLRA).
Last year, General Counsel Abruzzo issued memorandum GC Memo 23-08 stating her position that most non-compete agreements violate the NLRA because they tend to chill the exercise of Section 7 rights. And enforcement efforts against such agreements already underway, in particular a recent complaint issued by the GC. Recently, Region 22 issued a complaint against a building services contractor alleging the use of a no-poach agreement with its building clients violated the NLRA.
This latest memo further details the General Counsel’s plan to not only prosecute employers who require that their employees sign non-compete and “stay-or-pay” provisions, but to, as fully as possible, remedy the monetary harms employees may experience as a result of these provisions.
This article outlines the steps employers can take to cure unlawful “stay-or-pay” provisions within the short 60-day window the GC has set to make necessary adjustments as well as the remedies the GC plans to seek in response to agreements she deems unlawful.
What Are “Stay-or-Pay” Provisions?
“Stay-or-pay” provisions require employees to pay their employer if they separate from employment within a certain timeframe. These can include training repayment agreements (TRAPs), educational repayment contracts, quit fees, damages clauses, sign-on bonuses, and other similar arrangements.
Why Are These Provisions Problematic?
According to the General Counsel, these provisions can restrict employee mobility and increase fear of termination, thereby infringing on employees’ Section 7 rights under the NLRA. They can make resigning financially difficult or untenable, discouraging employees from engaging in protected activities like union organizing.
Steps to Cure Unlawful “Stay-or-Pay” Provisions
Employers have until December 6, 2024, sixty days from the memo issuance date to cure any preexisting “stay-or-pay” provisions that advance a legitimate business interest. The General Counsel made clear that, “recission alone will fail to remedy all the harms caused by the provision.” Here’s what needs to be done:
- Repayment Amount: Ensure the repayment amount is no more than the cost of the benefit bestowed. Any amount in excess should be reduced and affected employees should be notified of the new repayment amount.
- Stay Period: Shorten any unreasonably long stay periods to a reasonable length and inform impacted employees of the new stay period. Determining what is reasonable, according to the GC, is “based on factors such as the cost of the benefit bestowed, its value to the employee, whether the repayment amount decreases over the course of the stay period, and the employee’s income. Where the cost of the benefit is greater, the stay period may be longer, whereas lower-cost benefits should be associated with shorter stay periods.”
- Termination Without Cause: Amend provisions to make clear that repayment is not required if the employee is terminated without cause. Notify employees of this change.
- Voluntary Agreements: Ensure that any stay-or-pay arrangement is fully voluntary and entered into with informed consent. Ensure employees will not suffer undue financial loss or adverse employment consequences if they decline to enter into such agreements.
- Specific Repayment Amount: Clearly specify the repayment amount upfront. Employees must be informed of the exact debt amount before assuming the stay requirement.
- Retract Debt Collection Enforcement: For any preexisting “stay-or-pay” provisions that do not comply with the above, employers should also retract any debt collection enforcement actions and notify all necessary parties that the debt has been nullified.
What Happens If Employers Do Not Comply?
If Employers fail to cure these defects within the 60-day window, the General Counsel intends to prosecute preexisting “stay-or-pay” arrangements that fail the outlined test and seek retroactive application, absent extenuating circumstances.
Remedies
The General Counsel differentiated between voluntary “stay or pay” arrangements entered into with informed consent and non-voluntary agreements. For the former, the General Counsel said, “Where a stay-or-pay arrangement was voluntarily entered into, with informed consent, in exchange for a benefit, but the provision violates the Act because it is not otherwise narrowly tailored in one or more ways discussed above, the employer should be ordered only to rescind and replace it with a lawful provision” and undertake other traditional make-whole remedies as may be applicable.
However, for non-voluntary agreements, the GC stated that traditional, “make-whole remedies to unwind discipline or legal enforcement actions, while also necessary, will not be sufficient.” She outlined several remedies for employers who fail to comply with the new guidelines on “stay-or-pay” provisions. Here are specific examples:
- Rescission and Notification: The General Counsel will seek rescission of the unlawful “stay-or-pay” provision and require a notice to employees that the “stay” obligation has been eliminated and any debt has been nullified.
- Lost Wages and Benefits: For employees who claim they were discouraged from pursuing or accepting a better job due to the unlawful provision, the GC will seek compensation for any differences in pay or benefits. This includes demonstrating that there was a vacancy for a job with a better compensation package, they were qualified for the job, and they were discouraged from applying or accepting the job because of the “stay-or-pay” provision. In a footnote the GC added, “[s]imilar relief is also warranted where maintenance of an anti-moonlighting provision discourages employees from pursuing or accepting a second job.”
- Compensation for Repayments Made: When employers have received payment under an unlawful provision, the GC will seek repayment to the individual.
- Legal and Collection Fees: The GC will seek to have employers retract all attempts to collect the debt whether through legal action or a collections agency and notify all necessary parties that the debt has been nullified. The GC will also seek to have the employee compensated for any legal or other fees associated with defending against the action.
- Credit Rating and Financial Harm: If an employee’s credit rating was impacted by the attempted enforcement, the GC may pursue remedies that include the employer taking steps to correct the credit rating, and to compensate the employee for any pecuniary harms, such as difficulty securing new employment or adverse terms on a loan due to a lowered credit score.
- Additional Financial or Pecuniary Harms: An employer could be required to pay for moving-related costs if an employee had to relocate to obtain employment within the industry and cover the costs of any retraining efforts undertaken to be eligible for a position in a different industry not covered by the provision.
Conclusion
As summarized in an NLRB press release, GC 25-01, is a continuation of the General Counsel’s mission to, “rebalance [] economic power between labor and management” by restricting use of non-compete agreements. The NLRB’s announcement came with reminders of the enforcement actions her office has already taken against non-compete agreements. Specifically, a June 13, 2024, ALJ ruling that non-compete and non-solicitation provisions violate the National Labor Relations Act and a settlement involving non-compete and training repayment provisions which restricted employee mobility. The NLRB GC has also created a know your rights card for workers and entered into memoranda of understanding with the Department of Justice’s Antitrust Division, the Federal Trade Commission, and the Consumer Financial Protection Bureau to advance a unified government approach to non-compete agreements.
And now, this memo makes clear Employers must act swiftly to review and amend “stay-or-pay” provisions to comply with the new guidelines. Employers are encouraged to consult legal counsel for complete, specific advice on assessing risks and implementing compliance measures.
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