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On Oct. 7, 2024, Jennifer Abruzzo, General Counsel for the National Labor Relations Board (“NLRB”), issued a memorandum aimed squarely at non-compete and “stay-or-pay” provisions, and how she plans to address them under the National Labor Relations Act (“NLRA”). Although non-binding on the Board, the memo establishes guidance for all NLRB regional offices, and it eventually could lead to the Board’s formal adoption of her positions.
Previously, Abruzzo had made clear that many non-compete agreements (even those with non-union workers) violate the NLRA. In her new memo, she reaffirmed that stance and added that “stay-or-pay” provisions in employment agreements in which employees must repay their employer if they separate from employment also violate the law. To deter the use of these agreements, Abruzzo announced her intent to prosecute employers who require employees to sign non-compete and “stay-or-pay” agreements, and provide remedies for affected employees.
Proposed Remedies to Counter Effects of Employee Non-Competes
Abruzzo expanded upon her previous memo regarding the illegality of most employment non-competes by emphasizing the financial harm associated with non-competes. These include where an employee forgoes certain advancement opportunities out of fear of breaching their contractual obligations to the employer, or harm associated with relocation, entering another field, or undertaking further training to avoid violating a non-compete. Because simply canceling the non-compete won’t fully address these harms, Abruzzo proposed the following remedies for employees who can show they were adversely affected:
Compensation For Missed Job Opportunities During Employment
To remedy the harm inflicted on employees who can show they were deprived of a better job opportunity as a result of a non-compete, Abruzzo proposed that employers be required to compensate those employees for the difference in pay and benefits. Employees would have to show there was a vacancy available for a job with a better compensation package; they were qualified for the job; and they were discouraged from applying for, or accepting, the job because of the non-compete provision.
Compensation for Missed Job Opportunities Post-Employment
Further, Abruzzo wants to provide relief to former employees who left the company if they can prove: a job was available elsewhere; they were qualified; and the non-compete stopped them from applying or accepting the position. Again, the proposed remedy is the pay difference between the job they could have had and the one they took.
Compensation for Relocation and Training Costs
Employees who had to move outside of the geographic region to obtain employment within the industry to avoid violating an unlawful non-compete provision would also be compensated under Abruzzo’s guidance for moving-related costs. Employers also would be required to compensate employees for the costs of any retraining efforts undertaken to be eligible for a position in a different industry not covered by the provision.
Posting Requirements
Abruzzo recommended that the board update its notice postings to inform employees that: they might be entitled to extra pay if the non-compete kept them from pursuing better job opportunities; they may receive compensation if they left the company and struggled to find similar employment; and they should contact the regional office if they have evidence related to these claims.
Abbruzo Contends That “Stay-or-Pay” Provisions are Presumptively Unlawful
A “stay-or-pay” provision is any contract under which an employee must pay their employer if they separate from employment within a certain timeframe (including training repayment agreements, educational repayment contracts, quit fees, damages clause, sign-on bonuses, etc.). According to Abruzzo, these provisions are presumptively unlawful, and employers will be prosecuted, unless such provisions are narrowly tailored to minimize any interference with Section 7 rights.
Narrowly Tailor any Stay-or-Pay Provisions
Under the guidance, employers can rebut the presumption of illegality if the provision is narrowly tailored to minimize any infringement on Section 7 rights by showing it is voluntarily entered into in exchange for a benefit not as a condition of employment; has a reasonable and specific repayment amount specified before the employee agrees; has a reasonable “stay” period; and does not require repayment if the employee is terminated without cause.
Employers Have Until Dec. 6 to Correct Nonconforming Stay-or-Pay Provisions
Abruzzo indicated that she will exercise her prosecutorial discretion by allowing employers 60 days from the date of the memo to correct any preexisting nonconforming provisions. For example, if a provision includes a repayment amount that is more than the cost of the benefit bestowed, the employer should reduce it to a level that is no higher than the cost and notify affected employees of the new repayment amount. If a stay period is unreasonably long, it should be adjusted to a reasonable length and the employer should notify impacted employees of the change. If the employer did not notify the employee of the repayment amount, or consent was obtained involuntarily, they must inform the employee of the exact amount within 60 days of this memorandum.
Key Takeaways
- Employers should review their non-compete and “stay-or-pay” agreements to assess whether they comply with the new guidance.
- If employers identify any nonconforming “stay-or-pay” agreements, they have until Dec. 6 to revise those provisions to ensure they are voluntary, reasonable, and properly communicated to employees.
- If Abruzzo’s guidance is adopted or followed, employers are faced with potential liability associated with employees who can establish they were harmed by non-compete agreements including, among other things, pay differences for lost opportunities, relocation costs, and retraining costs.
