NLRB General Counsel Takes Aim at Non-Competes and “Stay or Pay” Provisions

NLRB General Counsel (National Labor Relations Board), Jennifer Abruzzo, on October 7, 2024, released a staff memo providing enforcement guidance to regional offices investigating employers for illegal employment practices. GC Memorandum 25-01 (GC Memo) focuses on non-competition agreements and “stay or pay” provisions, both of which Abruzzo argues can illegally restrict workers’ job opportunities and violate the National Labor Relations Act (NLRA). While the GC Memo is not law, it articulates the GC’s approach to enforcement.

NLRB General Counsel on Stay or Pay Provisions

The GC Memo addresses the legality of stay or pay provisions. These provisions generally require an employee to pay back their employer for certain expenses if they quit or get fired within a certain timeframe after being hired. Examples include: mandating the return of sign-on bonuses and the cost of training/educational courses, and paying the employer damages or quit fees.

Abruzzo urges the NLRB general counsel to find these clauses presumptively illegal because they limit employee mobility and discourage employees from engaging in protected activity to improve their working conditions in their current job. To rebut this presumption, employers must prove that the provision advances a legitimate business interest and is narrowly tailored to minimize any infringement of employee rights under NLRA Section 7. This requires employers to demonstrate their provision meets all of the following criteria:

• It was voluntarily entered into in exchange for a benefit. This can be shown if a training program is optional, employees can choose educational courses from other vendors and pay for them separately, or employees can elect to take a sign-on bonus after the designated employment period, rather than as part of a stay or pay provision.
• It has a reasonable and specific repayment amount. The amount must be “no more than the cost to the employer of the benefit bestowed” and must be specified upfront.
• It has a reasonable “stay” period. This is determined on a case-by-case basis, considering factors such as the cost of the benefit provided, its value to the employee, whether the repayment amount decreases over the course of the stay period, and the employee’s income. 
• It does not require repayment if the employee is terminated without cause.

Employers have 60 days from the date of the GC Memo to address existing provisions that do not comply with these requirements to avoid prosecution. After this period, remedies for an unlawful provision vary depending on which of the above elements were violated. However, the aim of any enforcement proceeding is to make affected employees whole for any financial harm caused by the provision. Employers could be required to return any payments the employee made and notify credit reporting companies that the employee’s debt has been nullified if the employer engaged in collection efforts. In addition, employees can try to recover damages if they can show they lost better employment opportunities because of the unlawful provision. 

Remedies for Unlawful Non-Competes 

In a prior 2023 GC Memo, Abruzzo made clear that she believed many non-competition agreements were unlawful under the NLRA. In the 2024 GC Memo, she further clarifies her position on remedies that may be ordered for illegal non-competes.

As with stay or pay provisions, the goal is to make employees whole for damages they may have suffered. Employers may be liable for the difference between what the employee makes and what they could have made in another position. However, the employee must show “(1) there was 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 an employee left the job, damages may be available for financial harm associated with complying with the unlawful non-compete provision. This could include relocation costs to move outside the non-compete’s geographic reach, lost wages while the employee searched for a job that would not violate the non-compete, reduced wages from taking a job outside their industry at a lower pay, and other damages.

Next Steps for Employers

While the GC Memo does not have the force of law, it does guide how regional offices should investigate and prosecute cases. Accordingly, it is likely to lead to more enforcement actions. Further, the NLRB general counsel may adopt this as its formal policy, making it law in the future.

Cases are pending against the NLRB, which may affect the enforcement of the standard laid out in the GC Memo. However, in the interim, employers should review all their employment agreements that contain non-competes and/or stay or pay provisions with an attorney to determine whether they should be revised or eliminated.

Please feel free to contact any of our employment attorneys if you have any questions or would like our assistance in complying with the GC Memo.

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