NLRB’s General Counsel Issues Memo Concerning Non-Compete and Stay-or-Pay Provisions
Jennifer Abruzzo, the General Counsel (“GC”) for the National Labor Relations Board (“NLRB”) has previously been vocal (including in prior guidance) about her position that certain non-compete agreements may run afoul of the National Labor Relations Act (“NLRA”). On October 7, 2024, GC Abruzzo issued Memorandum GC 25-01 (“Memo”) reiterating her position and laying out the remedies she sees as appropriate when employers utilize such non-compete provisions. The GC also set forth her view on certain “stay-or-pay” provisions (e.g., educational repayment contracts, sign-on bonuses with repayment terms, etc.), which she largely believes infringe upon employees’ Section 7 rights to engage in protected concerted activity for their mutual aid or protection and violate the NLRA unless they are narrowly tailored.
Remedies for Unlawful Non-Competes
As more fulsomely described in her May 2023 Memo, the GC’s stance is that non-competes chill Section 7 rights by interfering with employees’ ability to: (1) threaten, or carry out concerted threats, to resign to secure improved working conditions; (2) concertedly seek or accept employment with a local competitor to obtain better working conditions or solicit their co-workers to do the same; or (3) seek employment, at least in part, to engage in protected activity (such as union organizing) with other workers at the employer’s workspace. Specifically, GC Abruzzo noted that employees with non-competes “know that they will have greater difficulty replacing their lost income if they are discharged for exercising their statutory rights to organize and act together to improve working conditions; their bargaining power is undermined in the context of lockouts, strikes and other labor disputes; and their social ties and solidarity leading to improvements in working conditions at workplaces are lost as they scatter to the four winds.”
In the October Memo, the GC asserts that given what she views as the “pernicious financial harms” of non-compete provisions, rescinding the non-compete is an insufficient remedy, regardless of whether or not the employer sought to enforce the provision. In the GC’s view, the employee must be made whole. For example, an employee who demonstrates that (1) there was a vacancy for a job offering more favorable compensation, (2) the employee was qualified for the job, and (3) the employee was discouraged or deterred from applying or accepting the job due to a non-compete provision with a current or prior employer, should be compensated for the difference (in terms of pay or benefits) between what they would have received at the better job opportunity and what they did receive.
Other potential “make whole” relief may include:
Compensation for moving related costs if an individual had to move outside of the geographic region to obtain employment within the industry; and
Compensation for the costs of any retraining efforts the individual undertook to be eligible for a position in a different industry not covered by the non-compete provision.
Notably, the GC asserts that any uncertainty regarding whether the individual would actually have obtained the better job, whether the compensation package would have been more favorable, and the new job’s actual start date should be resolved in favor of the employee. Furthermore, the GC notes that these damages should be available regardless of whether the individual was unlawfully discharged, was lawfully terminated, or voluntarily resigned. Finally, the GC proposes that the Board should amend its standard notice posting in unfair labor practice cases to notify current and former employees by mail of these potential remedies and encourage them to contact the Board about any potential violations.
Stay-or-Pay Provision
“Stay-or-pay” provisions generally refer to any contract under which an employee must pay their employer if they separate from employment, whether voluntarily or involuntarily, within a certain timeframe. In this Memo the GC identifies several different types of stay-or-pay provisions, which include educational repayment contracts, quit fees, relocation or sign-on bonuses or other types of cash payments tied to a mandatory stay period. The GC argues that, for similar reasons as non-compete agreements, these “stay or pay” provisions violate Section 8(a)(1) of the NLRA unless they are narrowly tailored to minimize any interference with Section 7 rights. The GC notes that she will urge the Board to find these provisions presumptively unlawful. To rebut this presumption, the GC would require employers to prove that the provision (1) advances a legitimate business interest and (2) is narrowly tailored to minimize infringement of employee rights under Section 7 of the NLRA. More specifically, a narrowly tailored provision is one that is:
Fully voluntary, meaning that there is no adverse employment consequence if they decline, and in exchange for a benefit that is not tied to mandatory training;
Has a reasonable repayment amount specified in advance which is no greater than the cost to the employer of the benefit bestowed;
Has a reasonable stay period. While “reasonable” is undefined, the memo indicates that what is “reasonable” is fact-specific, with factors including the cost of the benefit bestowed, the value of the benefit to the employee, whether the repayment amount decreases over the stay period, and the employee’s income; and
Does not require repayment if the employee is terminated without cause.
As with non-compete agreements, the GC has indicated that she will seek “a more robust remedy” for what she views as unlawful stay-or-pay provisions, including modifying the obligation and related provisions, rescinding the debt, making the employee whole for unlawful enforcement actions, and broad notice provisions which encourage employees to come forward about potential violations.
Memos from the GC are not binding law. However, employers should view this Memo, and the positions asserted by the GC in it, as guidance concerning the kinds of cases the GC and the NLRB Regional Offices (“Regions”) intend to prosecute, how they will assess such provisions, and the remedies they may consider seeking. The Memo indicates that the GC will exercise “prosecutorial discretion” and will decline to issue a complaint on stay-or-pay issues for 60 days, through December 6, 2024, to provide employers time to cure any existing stay-or-pay provisions that advance a legitimate business interest but otherwise may need to be narrowly tailored pursuant to the factors laid out on the Memo. To cure, the employer must narrowly tailor the provisions and provide notice to employees of such changes. For example, the GC notes that if a stay period is unreasonably long, and the employer shortens it to a reasonable length and notifies impacted employees of the new stay period, such a provision will not be pursued. Any stay-or-pay agreements proffered or enforced after October 7, 2024, will not receive the 60-day period to cure such provisions.
Takeaways
As stated above, the Memo indicates the enforcement priorities for the NLRB’s GC, not the current state of the law. Moreover, employers are reminded that the NLRA applies only to non-managerial and non-supervisory employees, so these enforcement priorities will only extend to employees within those groups. That said, non-compete provisions remain an enforcement priority for the federal government, particularly with the Federal Trade Commission recently appealing the to the Fifth Circuit the District Court’s injunction of its non-compete rule. Employers should therefore consider whether and to what extent it would be worth revising their employment agreements, existing stay-or-pay provisions, and non-compete provisions in light of the enforcement priorities set forth in this Memo. Further, employers should review the benefits they provide and the policies that govern them to assess whether there are any conditions within those policies that could operate as stay-or-pay provisions worthy of review in light of the Memo. Employers should contact Kristina Grimshaw at kgrimshaw@fglawllc.com, or any attorney at the firm, with any questions they have about such existing policies, provisions, or agreements.
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