Doubling down on her anti-noncompete stance, National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo issued a memo to all field offices expanding on her position to include “stay-or-pay” provisions as well.
In May 2023, Abruzzo released a memo listing the five specific types of activities protected under Section 7 of the National Labor Relations Act that are “chilled” by noncompete agreements, stating that such provisions generally violate the statute except in limited circumstances.
Abruzzo provided additional information in the new Memorandum GC 25-01, discussing her intent to urge the Board not only to find certain noncompete provisions unlawful but to, as fully as possible, remedy the harmful effects on employees when employers use and apply them.
Noncompete agreements are often “self-enforcing” in that employees may forgo certain opportunities out of fear of breaching their contractual obligations, she wrote, which can result in a harmful financial impact on employee wages and benefits.
Because of this, Abruzzo said, rescission alone will fail to remedy all the harms caused by the noncompete provision, and make-whole remedies to unwind discipline or legal enforcement actions will not be sufficient.
“Simply put, the goal is to place employees in the same position, as nearly as possible, in which they would have been had the employer not maintained the unlawful provision,” she wrote.
Regions should seek make-whole relief by permitting employees to come forward during the notice-posting period and demonstrate that they were deprived of a better job opportunity as a result of the noncompete provision. Employers may be required to compensate the employee for the difference (in terms of pay or benefits) between what they would have received and what they did receive during the same period.
Individuals who separated from the employer since the start of the Section 10(b) period may also be entitled to make-whole relief for additional harms or costs associated with complying with the noncompete provision during the post-employment period, she added.
Abruzzo also targeted “stay-or-pay” provisions, which she said take a variety of forms, including training repayment agreement provisions, educational repayment contracts, quit fees, damages clauses, sign-on bonuses or other types of cash payments tied to a mandatory stay period and other contracts under which employees must pay their employer in the event that they voluntarily or involuntarily separate from employment.
“Stay-or-pay provisions have a tendency to interfere with, restrain or coerce employees in the exercise of the rights guaranteed in Section 7 of the Act,” she wrote. “Employers do not have a legitimate business interest in forcing employees to remain employed in a given workplace against their will through the use of coercive contractual arrangements. Indeed, courts have frowned upon the use of stay-or-pay provisions to advance the purported interest of employee retention given the Thirteenth Amendment’s prohibition against indentured servitude, among other concerns. For these reasons, I believe quit fees, damages clauses and other stay-or-pay provisions whose sole purpose is to force employees to remain employed by imposing fees if they separate are unlawful under the Act.”
Abruzzo said she intended to urge the Board to find that any provision under which an employee must pay their employer if they separate from employment—whether voluntarily or involuntarily—within a certain time frame is presumptively unlawful.
Employers may rebut the presumption by proving that the stay-or-pay provision advances a legitimate business interest and is narrowly tailored to minimize any infringement on Section 7 rights, specifically by showing that the provision is voluntarily entered into in exchange for a benefit, has a reasonable and specific repayment amount, has a reasonable “stay” period and does not require repayment if the employee is terminated without cause.
The memo detailed Abruzzo’s plans to prosecute preexisting stay-or-pay arrangements that fail the standards set forth in the memo and seek retroactive application, absent extenuating circumstances, as well as issue complaints, absent settlement, over the proffer, maintenance or enforcement of any unlawful stay-or-pay arrangement that is entered into after the memo was issued without a 60-day reprieve.
To read the memo, click here.
Why it matters:
The memo reiterates the NLRB General Counsel’s position on noncompetes and expands her focus to include stay-or-pay provisions, which she believes are presumptively unlawful. “Stay-or-pay provisions have serious potential for suppressing union organizing and other concerted activity for mutual aid or protection, including by impairing job mobility,” Abruzzo said in a statement accompanying the memo. “Employers have used these provisions as coercive restrictors of employee mobility, which is not a legitimate business interest.”