The National Labor Relations Board’s top attorney said Monday that she intends to prosecute employers that require their employees to sign noncompete agreements and so-called stay-or-pay provisions, and she said she will “remedy the harmful monetary effects employees experience as a result of these provisions” as much as possible.
NLRB General Counsel Jennifer Abruzzo communicated her plans in a 17-page memo issued to all field offices, expanding on a memo she had issued in May 2023. She said she continues to maintain that “overbroad” noncompete agreements aren’t legal because “they chill employees from exercising their rights under Section 7 of the National Labor Relations Act, which protects employees’ rights to take collective action to improve their working conditions” such as by changing jobs or or leveraging “outside options to obtain a raise.”
Abruzzo also noted that, as have noncompete agreements, stay-or-pay provisions have become more common in US workplaces. “Like non-compete agreements, stay-or-pay provisions both restrict employee mobility, by making resigning from employment financially difficult or untenable, and increase employee fear of termination for engaging in activity protected by the Act,” she wrote.
Such provisions include training repayment agreement provisions (sometimes referred to as TRAPs), educational repayment contracts, quit fees, damages clauses, sign-on bonuses and other types of cash payments that are connected to a mandatory stay period, as well as other contracts under which employees must pay an employer if they voluntarily or involuntarily separate from employment.
“I recognize that both employers and employees can benefit from certain training repayment provisions and other stay-or-pay arrangements,” Abruzzo wrote in her new memo. “However, given the serious potential for suppressing union organizing and other concerted activity for mutual aid or protection, including by impairing job mobility, I believe such provisions must be narrowly tailored to minimize that infringement on Section 7 rights in order to respect the rebalance of ‘economic power between labor and management’ Congress sought in passing the Act.”
Stay-or-pay arrangements should be voluntary, have a “reasonable and specific” repayment amount, have a ‘reasonable’ ‘stay’ period, and require no repayment if a person’s employment is terminated without cause, she said.
Abruzzo said she will give employers 60 days to change or amend any unacceptable stay-or-pay provisions, if they “advance a legitimate business interest,” to avoid prosecution.
“For example, if a stay-or-pay arrangement includes a repayment amount that is more than the cost of the benefit bestowed, the employer should reduce it to a level that is no higher than that cost and notify affected employees of the new repayment amount,” she wrote. “Likewise, if a stay period is unreasonably long, the employer should shorten it to a reasonable length and notify impacted employees of the new stay period. And if the stay-or-pay provision requires repayment in the event an employee is terminated without cause, the employer should amend the provision to make clear that it does not cover no-cause termination and so notify employees.”
Abruzzo noted in an announcement on Monday that in June, an NLRB administrative law judge ruled that noncompete and non-solicitation provisions violate the National Labor Relations Act. She also noted that earlier this year, Region 9 of the NLRB, in Cincinnati, obtained a settlement involving noncompete and training repayment provisions that restricted employee mobility.
The general counsel previously entered into memoranda of understanding with the Department of Justice’s Antitrust Division, the Federal Trade Commission and the Consumer Financial Protection Bureau that she said “advance a whole-of-government approach to the anticompetitive and unfair effects of restrictions on mobility.”
In August, a judge struck down the FTC’s ban on noncompete agreements, ruling that the agency exceeded its statutory authority in issuing the ban and that the ban was “arbitrary and capricious” by taking a “one-size-fits-all” approach.
