NLRB Cracks Down on Non-Compete Agreements and “Stay-or-Pay” Provisions … For Now
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APPLIES TO All Employers |
EFFECTIVE October 7, 2024 |
QUESTIONS? Contact HR On-Call |
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Discussion:
On October 7, 2024, NLRB General Counsel Jennifer Abruzzo issued a memorandum addressing non-compete and “stay-or-pay” provisions in employment agreements. This guidance provides new insights into how the NLRB plans to evaluate these provisions under the National Labor Relations Act (NLRA). Although non-binding, the memo establishes a framework for regional offices and may signal future formal rulings.
Of note, the NLRB reaffirms that non-compete agreements, even with non-union workers, can violate the NLRA, emphasizing the negative impact of non-competes on workers, including preventing career advancement, relocation, and further training. Because of this, Abruzzo has indicated her intent to prosecute employers who require employees to sign non-compete and “stay-or-pay” agreements, and to provide remedies for affected employees. These proposed remedies include (1) compensation for missed job opportunities for current or former employees who can show they were discouraged from pursuing better-paying jobs due to a non-compete; and (2) compensation for relocation and training costs in situations where an employee had to relocate or retrain to avoid violating a non-compete.
With respect to “stay-or-pay” provisions, the NLRB General Counsel said these provisions are presumptively unlawful, and employers will be similarly prosecuted, unless such provisions are narrowly tailored to minimize any interference with Section 7 rights. A “stay-or-pay” provision is any contract under which an employee must pay their employer if they separate from employment within a certain timeframe, including training repayment agreements, educational repayment contracts and quit fees. Employers can rebut this presumption if the provision is voluntary, has a reasonable and specific repayment amount, includes a specific “stay” period, and does not require repayment if the employee is terminated without cause. As part of the memo, the NLRB has indicated that employers will have 60 days from the date of the memo to correct any nonconforming “stay-or-pay” provisions.
That being said, in line with the results of the recent presidential election, the NLRB general counsel is expected to be replaced soon after January 20, 2025 and a number of NLRB rulings rescinded from recent years. Employers should comply with existing requirements, and continue to look for updates on this developing situation.
Action Items
- Review non-compete and “stay-or-pay” provisions with legal counsel to determine whether revisions are appropriate.
Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2024 ManagEase