New NLRB memo focuses on non-compete and stay-or-pay policies: important updates for employers

NLRB General Counsel Jennifer Abruzzo issued Memorandum GC 25-01 on October 7, 2024, announcing her goal to remedy the alleged harmful effects she believes are inherent in overbroad non-compete and stay-or-pay provisions by to impose increasingly generous solutions.

This Memorandum follows her GC memorandumissued in May 2023, announcing that offering, enforcing or enforcing non-compete agreements for non-supervisory employees generally violates Section 7 of the National Labor Relations Act, and urging regional offices to challenge this. Complaints have been filed in Region 9 (Cincinnati). Juvly aestheticand in Region 25 (Indianapolis) in JO Mory, Inc. In both cases, unlawful labor practices were alleged based in part on non-compete and non-solicitation agreements. In predicting this recent memorandum, the NLRB also challenged a training reimbursement policy in Juvly Aesthetics. Juvly settled without a decision from the NLRB. The administrative judge in the case of JO Mory, Inc. held that the non-compete and non-solicitation clauses were overbroad and unlawful, and that decision remains pending for Council review.

Abruzzo challenges Stay-or-Pay provisions

Similarly, Abruzzo is now targeting stay-or-pay provisions, which typically require an employee who leaves employment to reimburse an employer for certain company-paid benefits, such as sign-on bonuses, tuition reimbursement, training reimbursement, relocation expenses or other out-of-pocket expenses payments. the employee voluntarily or involuntarily leaves employment. She claims that they allegedly infringe on the same Article 7 rights as non-compete agreements because they prevent employees from seeking better working conditions elsewhere by creating a financial hurdle if they were to quit their job to take a better one . They also cool down joint activities while they work. Employees covered by such provisions are less likely to participate in union organizing or advocate for workers’ rights for fear that not only will they be fired in retaliation, but they will now be left without a job and owe a monetary debt to their employer .

Abruzzo proposes a test to determine legitimate stay-or-pay provisions

Abruzzo considers that such a stay-or-pay provision, even if entered into voluntarily, is presumptively an unlawful employment practice (ULP) under Article 7. However, employers can rebut this presumption if they can demonstrate that the stay-or-pay provision or-pay provision furthers a legitimate business interest and is specifically tailored to minimize interference with Article 7 rights. This can be demonstrated by meeting all of the following factors:

The provision states that it is voluntary. The stay-or-pay provision must be stated and entered into voluntarily, meaning that the employee could “freely choose” to enter into a stay-or-pay arrangement without any penalty, whether financial or an adverse employment action. the employee takes. Training reimbursement provisions only meet this requirement if the training is optional for the employee. If training is mandatory, such a residence-or-wage determination will not meet this requirement. Sign-on bonus agreements meet this requirement only if the employee is offered the choice of agreeing to the stay-or-pay provision or deferring payment until the end of the stay period.
The provision includes a reasonable and specific repayment amount. The reimbursement amount may not exceed the costs incurred by the employer and must be specified in advance before the employee agrees to the arrangement.
The provision provides for a reasonable period of stay. A reasonable period of stay is based on the facts and must be proportionate to the amount of the cost of the benefit.
The provision states that reimbursement is not required if the employee is dismissed without cause. The provision must actually state that reimbursement will not be enforced if the employee is dismissed without cause.

Abruzzo recommends harsher penalties that go beyond the full remedy

Abruzzo seeks to impose sanctions not only for enforcing such provisions, but also for the indirect damage it claims results from their existence. In her view, these provisions are “self-enforcing” as they may prevent employees from taking advantage of other employment opportunities as a result of a non-compete provision or because terminating them will discharge the debt under such a provision, thereby creating a harmful financial situation . impact on employee wages and benefits in general. Therefore, she insists that the general penalties for ULPs, such as rescission, and even the current ‘Make Whole remedies’ may not be sufficient to remedy these ‘pernicious’ harms caused by non-compete and stay-or-pay agreements. provisions.

She advocates that any other current employee or even former employee who has been employed in the six-month period prior to the filing of a complaint should be given the opportunity to come forward and demonstrate that he or she too has been denied a better job as a result of the non-compete or stay-or-pay clause. Such an employee would be entitled to compensation from the employer for the difference in pay and benefits between the employee’s current job and the alternative position for the period the provision was in effect, if the employee could demonstrate:

there was still a better paying job available,
the employee was qualified for the position, but
was discouraged from applying or accepting the job because of the non-compete or stay-or-pay provision.

It would impose the same remedy in cases where an employer’s anti-abuse provision prevented the employee from seeking a second job. Employees should also be compensated for relocation expenses if they are forced to relocate outside the same geographic reason and/or retraining costs to avoid violating a non-compete agreement.

Proposed new 10(b) notice

Finally, it recommends that, in both non-compete and stay-or-pay situations, the Board of Directors modify the standard notice required for employers subject to a complaint to specifically warn employees, through a direct order to a violating employer to send notice to its employees of these available remedies, including compensation. Such notice will further advise employees that they should contact the NLRB regional office during the notice period if they have any indication that they have been discouraged from pursuing or accepting other job opportunities, if they experience difficulty in terminating their employment have had difficulty finding comparable work, or have been discouraged from looking for other employment because of a stay-or-pay provision.

60 days to comply with and correct Stay-or-Pay provisions

Finally, Abruzzo provides employers with a sixty-day ‘period’ from the date of this Memorandum to waive any pre-existing ‘stay-or-pay’ provisions that further a legitimate business interest, in order to avoid the filing of a complaint . Suggested treatments include:

If a stay-or-pay provision includes a reimbursement amount that exceeds the benefit received by the employee, the employer must reduce this to an amount equal to or less than the cost and notify the employee of the new refund amount.
If a period of stay is unreasonably long, the employer must shorten it to a reasonable length and inform the employee of the new period of stay
If the stay-or-pay provision requires reimbursement even if the employee is terminated without cause, the employer must change the provision to clarify that it does not apply to termination without cause, and notify the employee of the change
If proceedings are pending at the time this Memorandum is issued, the employer must amend its request for reimbursement within sixty days to meet this test by (i) reducing the amount claimed to no more than the value of the award benefit (ii) rejecting a claim if the stay was unreasonably long and the employee has already served a reasonable period of stay, or rejecting a claim if the employee was dismissed without cause.

For pre-existing provisions that do not promote a legitimate business interest, it will refuse to prosecute if the employer has waived the debt owed within this 60-day period and informed the employee that there is no longer an obligation to repay the debt obligation , has withdrawn any collection measures and, if the employee has paid part of the debt, has returned these amounts to the employee.

Abruzzo fully intends to (i) prosecute and retroactively apply any pre-existing stay-or-pay provisions that do not meet the above tests and (ii) any offer, maintenance or enforcement of an unlawful stay -or-pay arrangement entered into after the issuance of this Memorandum.

What employers must now take into account

Abruzzo’s 60-day period ends on December 6, 2024. Although its Memorandum is not binding law, it expressly announces its intended target and treatment of non-compete and stay-or-pay provisions. Given its penchant for targeting such provisions and the recent complaints filed by the Board of Directors, employers may wish to assess their risk comfort level and immediately begin reviewing current stay-or-pay arrangements or policies, as well as the non-compete agreements to ensure compliance. perform the proposed test and, if necessary, take corrective action as outlined above.

General Counsel Abruzzo’s recent positions on employment policy, along with the board’s tendency to follow its recommendations and file complaints, may create confusion and leave employers wondering what to do next.