In a new memo issued on October 7, 2024, National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo expanded on her position on employment agreements. The memo is similar to one issued in May 2023 in which the General Counsel took the position that the maintenance and enforcement of non-competes violates the NLRA.
The new memo expands on those opinions but also informs employers that, in the General Counsel’s opinion, many “stay-or-pay" provisions are unlawful under the National Labor Relations Act (NLRA) for union and non-unionized workforces. Stay-or-pay provisions are agreements under which an employee must pay their employer if they separate from employment within a certain time frame.
In the memo, the General Counsel stated an intention to exercise prosecutorial authority over non-competes and stay-or-pay provisions and intends to “seek retroactive application, absent extenuating circumstances,” if not corrected within 60 days. General Counsel memos issued by the NLRB are not statements of law, but they are guidance issued to explain the enforcement posture of the NLRB and are a good indication of what the agency will focus on in enforcement actions.
The memo comes less than two months after the Federal Trade Commission’s (FTC’s) ban on non-competes was blocked by a federal judge.
Non-Competes
The memo is broken out into two parts. The first part expands on the May 2023 memo by opining that rescission of an unlawful non-compete is not sufficient alone to remedy the harm that the agreement caused to an employee. Rather, the General Counsel urges that the proper remedy is “make-whole” relief.
This relief may be available where the employee (or former employee) can demonstrate that there was (1) 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 non-compete provision. Where these three things are shown, the employer must compensate the employee the difference in pay or benefits (or both) between what the employee could have received had the non-compete not prevented them from applying for the opportunity.
The memo suggests that for separated employees, a remedy may be to make whole for the “additional harms” for costs associated with complying with the non-compete during the post-employment period (think lost wages, moving costs, etc.). The idea being that employees and former employees should be compensated for facing added difficulties in securing new employment that are incurred as a direct result of the non-compete provision.
Stay-or-Pay
The second part of the memo goes on to suggest that stay-or-pay arrangements are, likewise, unlawful. These provisions include training repayment agreement provisions, educational repayment contracts, sign-on bonuses, or other cash payments tied to a mandatory stay period. Like non-compete arrangements, the General Counsel stated that these “provisions have a tendency to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in … the Act.”
The memo opines that “Employers do not have a legitimate business interest in forcing employees to remain employed in a given workplace against their will through the use of coercive contractual arrangements.” Therefore, the General Counsel urges that these provisions are unlawful, unless narrowly tailored “to recoup the cost of optional benefits bestowed on employees and meet other requirements.”
According to the memo, an employer can rebut the presumption that the stay-or-pay provision is unlawful where the provision: (1) is voluntarily entered into in exchange for a benefit; (2) has a reasonable and specific repayment amount; (3) has a reasonable “stay” period; and (4) does not require repayment if the employee is terminated without cause.
Action Steps for Employers
The impact of this new memo remains to be seen, but employers can take some action now. For starters, the memo gives employers 60 days to cure potentially unlawful agreements before they might be subjected to investigation and penalties from NLRB unfair labor practice litigation. So, employers can assess what exposure they might have by understanding what agreements they currently have with their employees. Employers may also conduct an analysis under the suggested burden-shifting framework proposed by the General Counsel by ensuring their agreements advance a legitimate business interest and are narrowly tailored to that purpose.
Employers Council will continue to monitor any new developments on this topic. Consulting and Enterprise members can reach out to an Employers Council attorney for guidance.
Heather Hancz is an attorney for Employers Council.