On May 30, 2023, the National Labor Relations Board’s (NLRB) General Counsel (GC), Jennifer Abruzzo, issued a memorandum setting forth the GC’s position that the proffer, maintenance, or enforcement of noncompete agreements violates the NLRA. Earlier this month, the GC issued another memorandum expanding on that position. In this new memorandum, dated October 7, 2024, the GC asserts that an employer may be liable for damages if a noncompete agreement has the effect of discouraging an employee from seeking or accepting new employment.
The October 7 memorandum also takes aim at so-called stay-or-pay agreements, under which an employee must repay the employer if the employee separates from employment (voluntarily or involuntarily) within a specified timeframe. Common examples of stay-or-pay arrangements are educational repayment contracts, training repayment agreements, quit fees, and sign-on or relocation bonuses with mandatory stay periods.
The GC states that such provisions are presumptively unlawful under the NLRA, and that they can give rise to damage awards against employers if they prevent employees from leaving. Employers may rebut this presumption by showing that the stay-or-pay provision advances a legitimate business interest and is narrowly tailored to minimize infringement on the employee’s rights. Accordingly, any such provision must meet the following criteria:
• Must be entered into voluntarily in exchange for a benefit;
• Must have a reasonable and specific repayment amount;
• Must have a reasonable stay period; and
• Must not require repayment if the employee is terminated without cause.
The GC has granted employers a sixty-day window from the date of issuance of the memorandum to cure any preexisting stay-or-pay provisions. Accordingly, the deadline to come into compliance with the new requirements is December 6, 2024. Any stay-or-pay agreements proffered or enforced after the date of the memorandum (October 7, 2024) will not be entitled to the 60-day reprieve.
It’s important to bear in mind that the rights granted under the NLRA generally apply only to employees who are not supervisors or managers. Consequently, noncompete or stay-or-pay agreements offered to supervisory or managerial employees are not subject to the GC’s prohibitions.
Moreover, GC Abruzzo’s memoranda indicate how she intends to enforce the NLRA, but they are not definitive statements of the law. Her enforcement efforts will be subject to litigation before the NLRB and the courts. Such litigation could go on for years, and it remains to be seen whether her positions will be upheld. Nevertheless, in order to avoid becoming a test case, employers may want to analyze potential areas of exposure and, perhaps, consider taking remedial measures prior to the December 6 deadline.
