Employers should take a fresh look at noncompete agreements and provisions requiring non-supervisory employees to repay funds upon termination (such as training or educational repayment contracts and sign-on bonuses) in light of recent NLRB memoranda on these issues. Although the FTC’s attempted nationwide ban on noncompetes was blocked by a Texas federal judge in August 2024, that decision has no impact on the NLRB enforcement of employee rights under the NLRA.
On October 7, 2024, NLRB General Counsel Jennifer Abruzzo issued Memorandum GC 25-01. In that Memorandum, Abruzzo reiterates that typical employee noncompete agreements violate the National Labor Relations Act (NLRA), regardless of whether employers attempt to enforce them (See Lake Effect's prior blog for a complete discussion of the NLRB’s approach to this issue). GC Abruzzo’s Memorandum GC 25-01 also announces that if the NLRB finds that an employer maintained an unlawful noncompete, simply rescinding the agreement will not be enough. Rather, the NLRB will impose expansive remedies to compensate the affected worker. Such remedies may include economic damages for lost or foregone job opportunities, costs related to retraining efforts, and expenses incurred in moving outside of a restricted geographic area.
In addition, GC Abruzzo’s Memorandum GC 25-01 asserts a new NLRB position that “stay-or-pay” provisions, such as training repayment contracts, quit fees, sign-on bonuses, and other types of cash payments tied to a mandatory stay period for non-supervisory employees are presumed to violate Section 7 of the NLRA. The presumption applies to any contract under which an employee must pay their employer if they separate from employment, whether voluntarily or involuntarily, within a certain time frame. An employer can only rebut this presumption of unlawfulness by proving that the provision (1) was voluntarily entered into in exchange for a benefit; (2) has a reasonable and specific repayment amount; (3) has a reasonable “stay” period; and (4) does not require repayment if the employee is terminated without cause. NLRB-ordered remedies for unlawful “stay-or-pay” provisions will vary based upon the facts, but they may include rescission of the unlawful provision, erasure of employee debt, repayment to the employee of payments already made to the employer, and compensation for other job opportunities that an employee passed up because of the unlawful stay provision.
Finally, Memorandum GC 25-01 confirms that the NLRB will prosecute preexisting stay-or-pay arrangements that fail to meet the above requirements. However, employers have a 60-day window starting on October 7, 2024, to cure preexisting provisions that advance legitimate business interests.
For advice on noncompete agreements and pay-back provisions, reach out to your partners at Lake Effect before the cure period ends on December 6, 2024. We can help ensure compliance with applicable NLRB guidance and other applicable laws relating to a broad range of employment agreements.
Lake Effect is here to answer all your questions about employment laws, regulations, and agency guidelines. We continue to monitor important legal and HR developments, as well as other information that could impact the workplace. Please watch our blogs and emails for these important updates, as well as discussions of how compliance meets culture. To dive into these issues, contact us at info@le-hrlaw.com or 1-844-333-5253.
On October 7, 2024, NLRB General Counsel Jennifer Abruzzo issued Memorandum GC 25-01. In that Memorandum, Abruzzo reiterates that typical employee noncompete agreements violate the National Labor Relations Act (NLRA), regardless of whether employers attempt to enforce them (See Lake Effect's prior blog for a complete discussion of the NLRB’s approach to this issue). GC Abruzzo’s Memorandum GC 25-01 also announces that if the NLRB finds that an employer maintained an unlawful noncompete, simply rescinding the agreement will not be enough. Rather, the NLRB will impose expansive remedies to compensate the affected worker. Such remedies may include economic damages for lost or foregone job opportunities, costs related to retraining efforts, and expenses incurred in moving outside of a restricted geographic area.
In addition, GC Abruzzo’s Memorandum GC 25-01 asserts a new NLRB position that “stay-or-pay” provisions, such as training repayment contracts, quit fees, sign-on bonuses, and other types of cash payments tied to a mandatory stay period for non-supervisory employees are presumed to violate Section 7 of the NLRA. The presumption applies to any contract under which an employee must pay their employer if they separate from employment, whether voluntarily or involuntarily, within a certain time frame. An employer can only rebut this presumption of unlawfulness by proving that the provision (1) was voluntarily entered into in exchange for a benefit; (2) has a reasonable and specific repayment amount; (3) has a reasonable “stay” period; and (4) does not require repayment if the employee is terminated without cause. NLRB-ordered remedies for unlawful “stay-or-pay” provisions will vary based upon the facts, but they may include rescission of the unlawful provision, erasure of employee debt, repayment to the employee of payments already made to the employer, and compensation for other job opportunities that an employee passed up because of the unlawful stay provision.
Finally, Memorandum GC 25-01 confirms that the NLRB will prosecute preexisting stay-or-pay arrangements that fail to meet the above requirements. However, employers have a 60-day window starting on October 7, 2024, to cure preexisting provisions that advance legitimate business interests.
For advice on noncompete agreements and pay-back provisions, reach out to your partners at Lake Effect before the cure period ends on December 6, 2024. We can help ensure compliance with applicable NLRB guidance and other applicable laws relating to a broad range of employment agreements.
Lake Effect is here to answer all your questions about employment laws, regulations, and agency guidelines. We continue to monitor important legal and HR developments, as well as other information that could impact the workplace. Please watch our blogs and emails for these important updates, as well as discussions of how compliance meets culture. To dive into these issues, contact us at info@le-hrlaw.com or 1-844-333-5253.
