In Memorandum GC-2501, issued on October 7, 2024, National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo takes a strong stance against non-compete agreements and “stay-or-pay” provisions.
Sometimes referred to as “retention bonuses,” these provisions often bind employees by requiring them to repay bonuses or training costs if they leave an employer within a set period.
According to Abruzzo, “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. Accordingly, I believe that such provisions violate Section 8(a)(1) of the Act unless they are narrowly tailored to minimize any interference with Section 7 rights.”
The ”Act” to which Abruzzo is referring is the National Labor Relations Act. The Act, or “NLRA,” is a federal that governs private-sector employers and basically, among other things, protects the rights of workers to unionize.
Abruzzo “[urges] the Board to find that any provision under which an employee must pay their employer if they separate from employment, whether voluntarily or involuntarily, within a certain timeframe is presumptively unlawful.”
Abruzzo goes on to provide a four-factor test for employers to rebut the presumption by “proving that the stay-or-pay provision advances a legitimate business interest and is narrowly tailored to minimize any infringement on Section 7 rights.”
The four factors are:
1️⃣ The provision is voluntarily entered into in exchange for a benefit;
2️⃣ The provision has a reasonable and specific repayment amount;
3️⃣ The provision has a reasonable “stay” period; and
4️⃣ The provision does not require repayment if the employee is terminated without cause.
Abruzzo’s recommendations are not law.
However, as the NLRB’s General Counsel, her memorandums help to direct the areas in which the NLRB focuses.
Employers should be mindful that the NLRB is now focusing on these “stay-or-pay” provisions. Employers should closely examine their employment agreements to assess the potential impact of these suggested reforms, as they could face financial penalties if their agreements fail to comply with the standards set forth in Abruzzo’s guidance. All it takes is one employee to complain to the NLRB to start the ball rolling.