“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.

The post NEW NLRB General Counsel Memo Highlights Potential New Enforcement Over “Stay or Pay” Arrangements appeared first on Felhaber Larson.

NLRB General Counsel’s 2023 Memorandum

Back in May of 2023 the NLRB General Counsel issued Memorandum 23-08 (“GC Memo”) which focused on the legality of non-compete agreements under the NLRA.   The GC Memo takes the position that, with few exceptions, non-compete agreements should be deemed unlawful because they can “chill” employees from engaging in activities protected under Section 7 of the NLRA. Section 7 guarantees employees, whether unionized or not, the right to organize, bargain collectively, and participate in other concerted activities for mutual aid or protection.

The GC Memo emphasized that non-compete agreements could deter employees from leaving their jobs to seek better working conditions, organizing or joining unions, or even discussing job opportunities with competitors—all actions protected by the NLRA. While the memo primarily targeted non-compete agreements, it left open questions regarding the status of non-solicitation agreements, which employers often pair with non-competes to protect their business interests.  Generally speaking, non-solicitation provisions prohibit employees from “soliciting” or “recruiting” their other co-workers for a different employer.

Testing the Waters

The impact of the GC Memo became clearer with a case brought against a medical clinic and spa by the NLRB’s Cincinnati regional office. This case, initially filed in late 2023, culminated in a significant settlement later that year.

The consolidated complaint, issued in September 2023, alleged numerous violations, including the maintenance of unlawful confidentiality, non-disparagement, non-compete, non-solicitation, and training repayment provisions. The employer’s policies required employees who left their positions within the first twelve months to pay up to $75,000 in training costs and prohibited them from practicing aesthetic services within a twenty-mile radius for 24 months after termination. The complaint also alleged that the employer instructed employees not to discuss their terms and conditions of employment, including individual employment contracts, bonuses, and evaluations; unlawfully enforced its non-disparagement and training repayment provisions; and unlawfully discharged and withheld benefits from employees.

The case was resolved when the employer agreed to a comprehensive settlement. Under the terms of the settlement, the employer consented to rescind the unlawful policies, cease demands for training repayments, and pay over $25,000 in monetary relief to two employees who had been affected by the unlawful discharge and withholding of benefits. Additionally, the employer was required to post a remedial Notice to Employees across all its U.S. facilities and on its Slack messaging application, informing employees of their rights under the NLRA.

Cementing the New Standard

The NLRB’s opposition to non-solicitation agreements reached a new milestone with the recent decision in the case of J.O. Mory, Inc. In this case, a NLRB administrative law judge (ALJ) found that, under the NLRA, specific non-compete and non-solicitation provisions in an employee’s contract were unlawful for employees who were not supervisors or managers. The decision is significant because it applied the NLRB’s new Stericycle framework, which evaluates work rules from the perspective of an employee who is economically dependent on their employer.

The ALJ ruled that the non-solicitation provisions, along with other restrictive covenants in the employment agreement, could “chill” employees from engaging in protected activities because the provisions were overly broad. The ALJ, however, did not conclude that non-competition and non-solicitation restrictions are generally unlawful under the NLRA. The ALJ ordered the employer to rescind these provisions and notify current and former employees that they were no longer enforceable. The provisions were:

• a non-solicitation provision intended to prevent “pirating” by prohibiting employees during their employment and for twenty-four months after separation from “solicit[ing], encourag[ing], or attempt[ing] to persuade any other employee of [the] Employer to leave the employ of [the] Employer”;
• a non-competition provision that prohibited former employees for twelve months following separation from “directly or indirectly” engaging in or working for “any other business similar or competitive with [the] Employer’s business”; and
• a provision that required the employee to report “any and all offers or solicitations of employment that [the] Employee may receive from third-parties” and that did not include a limitation for union or other protected activity.

This decision upheld many of the concerns raised in the GC Memo and the Cincinnati complaint, providing an example of how the NLRB’s positions are being translated into real-world legal outcomes. It is important to note that the ALJ’s decision is not final for now. The case is still pending on appeal before the Board in Washington, D.C. which has yet to issue a decision.

The Bottom Line

The developments above reflect a broader trend within the NLRB: a growing intolerance for restrictive covenants that limit employees’ rights under the NLRA. While the full legal impact of these actions is still unfolding, it is clear that the NLRB is charting a course toward more aggressive regulation of non-solicitation and non-compete agreements.

For employers, these developments are a clear signal to re-evaluate their use of such agreements.  Although true non-complete agreements are now banned in Minnesota (eff. July 1, 2023), non-solicitation agreements are commonly used.   As the NLRB continues to advance its enforcement agenda, it is likely that more cases will emerge challenging the legality of these agreements.

The post The NLRB’s Expanding Scrutiny of Non-Solicitation Agreements appeared first on Felhaber Larson.

In addition to the firm’s state-wide rankings, five of our attorneys earned individual recognition as notable practitioners:

Labor & Employment 

Paul Zech, Band 1

Sara McGrane, Band 2

Penny Phillips, Band 2

Real Estate

Mark Radke, Band 4

Steve Yoch, Band 4

The post Felhaber’s Labor & Employment and Real Estate Groups are Recognized by Chambers appeared first on Felhaber Larson.

US News – Best Lawyers® “Best Law Firm” rankings are based on a thorough review of client and lawyer evaluations, peer review and data provided by the law firms being evaluated. A law firm must also have at least one attorney named to the Best Lawyers in America® list in that practice area and metropolitan area.

The post Felhaber Larson honored to be recognized in the “Best Law Firms” of 2023 appeared first on Felhaber Larson.

In addition to the firm’s state-wide rankings, four of our attorneys earned individual recognition as notable practitioners:

Labor & Employment 

Paul Zech, Band 1

Sara McGrane, Band 2

Penny Phillips, Band 2

Real Estate

Mark Radke, Band 4

The post Felhaber’s Labor & Employment and Real Estate Groups are Recognized by Chambers appeared first on Felhaber Larson.