On October 7, 2024, the National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo issued GC Memorandum 25-01: “Remedying the Harmful Effects of Non-Compete and “Stay-or-Pay” Provisions that Violate the National Labor Relations Act.”
In May 2023, GC Abruzzo issued GC Memorandum 23-08 taking the position that noncompete provisions and restrictive covenants, except in certain limited circumstances, violate the National Labor Relations Act (NLRA). In the more recent October GC Memo, GC Abruzzo clarified that not only are these provisions unlawful, but there should be expanded remedies imposed to offset any harmful effects. Additionally, GC Abruzzo opined that certain “stay-or-pay” provisions also violate the NLRA as infringing employee Section 7 rights. These “stay-or-pay” provisions are those that require employees to reimburse their employers upon separation, such as for training repayment, education expenses, sign-on bonuses, or other cash payments tied to mandatory stay periods.
The GC Memo states that the harm of restrictive covenants is that these provisions are “self-enforcing,” meaning that employees may decide to forgo other opportunities so that they are not viewed as breaching any contractual obligations. GC Abruzzo views this as having a negative impact on employee wages and benefits by harming their mobility and leverage in negotiations. For employees that have “stay-or-pay” provisions, there is the additional financial burden and consideration with balancing the delay of departing employment or the paying out the additional expense.
GC Abruzzo argues that recission of future application of these provisions alone is insufficient to remedy the harm, and there should be additional consideration of the financial effect caused by maintaining these provisions. GC Abruzzo states that extending the make-whole remedy to noncompetes would be consistent with the Board’s remedies for other unlawful conduct, and employees should be allowed to show that they were deprived of a better job opportunity. In other words, if the employee can satisfy certain criteria, an employer would be required to compensate the employee for the difference (pay and/or benefits) between what they would have made and what they did receive. Another example would be if the employee was required to relocate, and under these expanded remedies, GC Abruzzo argues that employee should be compensated for moving-related expenses.
On the topic of “stay-or-pay” provisions, GC Abruzzo suggests that these are similar to noncompete agreements and restrict employee mobility by making separation financially difficult or by increasing fear of termination. GC Abruzzo encourages the Board to find that these provisions are presumptively unlawful. An employer could rebut this presumption by proving that the provisions advance a legitimate business interest and is narrowly tailored to minimize infringement of employees’ Section 7 rights. In other words, showing that (1) the provision was fully voluntary and 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.
The solution GC Abruzzo advances is requiring employers to rescind and replace the unlawful provision with modified terms to make it reasonable and to remedy the effects of non-compete provisions. The GC Memo concludes with GC Abruzzo stating she will exercise prosecutorial discretion, and grant employers sixty-days to cure any pre-existing “stay-or-pay” provisions.
We note that there are pending cases challenging the authority of the NLRB to expand its remedial powers following the U.S. Supreme Court’s decision in SEC v. Jarkesy last term. Additionally, the results of the presidential election will likely impact the probability of this Memo coming into full effect. Employers should stay updated on Board decisions related to this GC Memo and noncompete or “stay-or-pay” provisions. The Miller Nash labor & employment team is tracking further developments and decisions in this area.
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