On Monday, October 7, 2024, the General Counsel of the National Labor Relations Board (NLRB) published Memorandum GC 25-01, continuing the NLRB’s years-long effort of targeting employment agreements viewed as restricting employee mobility. General Counsel Abruzzo’s previous May 2023 memorandum took the position that the maintenance and enforcement of non-compete provisions violates the National Labor Relations Act (NLRA) due to their “chilling” effect on non-management employees’ Section 7 rights.
The most recent memorandum issued on October 7 expands the NLRB’s position by now including stay-or-pay provisions as similarly violative of the NLRA as well as additional information regarding remedies for unlawful activity. The NLRB’s General Counsel gives employers until December 6, 2024 to bring any existing stay-or-pay provisions into compliance with these new guidelines.
Stay-or-Pay Provisions are Presumptively Unlawful
General Counsel Abruzzo defines “stay-or-pay” as “any contract under which the employee must pay their employer if they separate from employment, whether voluntary or involuntary, within a certain timeframe.” Stay-or-pay provisions often encompass training repayment agreements, education repayment contracts, sign-on bonuses, retention bonuses, or other arrangements where employees must pay their employer if they voluntarily or involuntarily separate from employment. The NLRA and this recent guidance apply to all employers and all non-management employees, regardless of whether there is a union presence.
The memorandum notes that these arrangements interfere with, restrain, or coerce employees in exercising rights guaranteed by Section 7 of the NLRA. General Counsel Abruzzo’s stated concern is that employees are less likely to engage in union organization, collectively advocate for improvements, or concertedly threaten to quit out of fear that termination would trigger a payment obligation. General Counsel Abruzzo urges “the Board to find any provision under which an employee must pay their employer if they separate from employment, whether voluntarily or involuntarily, within a certain timeframe [as] presumptively unlawful.” (emphasis added)
How to Salvage Stay-or-Pay Provisions To Meet the NLRB’s New Guidelines?
As noted above, the General Counsel urges the NLRB to find these provisions presumptively unlawful. However, General Counsel Abruzzo states that an employer may rebut this presumption by proving the stay-or-pay provision advances a legitimate business interest and is narrowly tailored to avoid infringement, such that the provision: (1) is voluntarily entered into for an exchange for a benefit; (2) contains a reasonable and specific repayment amount; (3) contains a reasonable stay period; and (4) does not require repayment if the employee is terminated without cause.
What are the proposed remedies?
General Counsel Abruzzo’s position is that employees should be made whole for unlawful non-compete and stay-or-pay provisions. Her position is that all an employee must demonstrate is that: (1) there was a vacancy available with a better compensation package; (2) they met minimum qualifications for the job; and (3) they were discouraged from applying for or accepting the job because of the unlawful provision. If an employee can establish these elements, it is the General Counsel’s position that the employee must be compensated for the difference in pay or benefits, regardless of whether the employee was even considered or offered a position.
Next Steps
General Counsel Abruzzo’s memorandum is not binding law, but simply her interpretation of the NLRA. However, NLRB field offices will likely adopt this guidance in their prosecution efforts. Legal challenges to the NLRB’s authority to promulgate new enforcement guidelines must wait until the proposed prosecution efforts begin in early December. Until then, the November elections will provide a significant hurdle for the NLRB, as a new administration will likely replace the leadership and provide a new direction for its prosecutorial aim.
In the meantime, employers are advised to review “stay-or-pay” provisions in current agreements and determine if they include unreasonable stay periods, unreasonable repayment amounts, or require repayment if the employee is terminated without cause.
Please contact an attorney in Frantz Ward’s Labor and Employment Practice Group if you have questions about this or other labor and employment issues.
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