On Monday, October 7, National Labor Relations Board General Counsel (GC) issued GC Memorandum 25-01, which details the agency’s intent to seek “make-whole” remedies for provisions viewed as unlawful under the National Labor Relations Act (NLRA). While the GC already declared a plan to curb certain noncompete agreements in a May 2023 memorandum, GC 25-01 extends the analysis to “stay-or-pay” provisions, which the GC asserts must be “narrowly tailored” to minimize their infringement on employees’ Section 7 rights.
“Stay-or-pay” provisions refer to those that require an employee to pay the employer if the employee separates from employment within a certain timeframe. They include various types of cash payments that are tied to a mandatory stay period, such as training repayment agreement provisions (TRAPs), educational repayment contracts, quit fees, damages clauses, and sign-on bonuses. According to GC Abruzzo, stay-or-pay provisions, like noncompete agreements, restrict employee mobility by increasing employee fear of termination for engaging in protected Section 7 activity and making resigning from employment financially difficult or untenable. As such, the GC argues these provisions should be considered presumptively unlawful unless an employer can demonstrate the following under a new burden-shifting framework:
The agreement…
- Is voluntarily entered into in exchange for a benefit, meaning accepting the provision must be optional and employees must not suffer an undue financial loss or adverse employment action if they decline;
- Has a reasonable and specific repayment amount, or one that is no more than the cost to the employer of the benefit conferred, the amount of which is specified up front;
- Has a reasonable “stay period,” which is fact-specific and must be determined on a case-by-case basis (however, greater costs may be associated with a greater stay period, and vice versa); and
- Does not require repayment if an employee is terminated without cause. Specifically, the agreement must state that the employee will not owe the debt if they are terminated without cause.
Although there is apparently a sixty day period to “cure” existing provisions that do not comply with this proposed framework, the GC intends to seek “make whole” remedies against employers who maintain noncompliant noncompete or stay-or-pay provisions.
The Bottom Line
While the NLRB has not adopted the GC’s proposed standards for noncompete agreements and stay-or-pay provisions, GC memoranda guide enforcement by Regional Offices and are afforded some weight by the Board, as evidenced by decisions like Stericycle in which the Board has adopted the GC’s proposed reasoning. In the wake of GC Memorandum 25-01, employers can expect Regions to issue and pursue complaints that these provisions violate Section 7 of the NLRA.