NLRB General Counsel Abruzzo recently issued a memo calling for the limitation of non-compete agreements and “stay-or-pay” provisions. Per the memo, non-competes and stay-or-pay arrangements (such as repayment clauses for training or bonuses if an employee leaves within a specific timeframe) are deemed presumptively unlawful under the National Labor Relations Act (NLRA), which protects employees’ rights to seek better job opportunities and engage in union activities.
In the memo, the General Counsel states that most stay-or-pay provisions should only be enforceable if they meet strict criteria: they must be voluntary, narrowly tailored, and tied to a tangible benefit conferred on the employee, with clear terms that limit repayment to the actual cost of the benefit. Additionally, repayment should not apply if the employee is terminated without cause. For non-competes, the memo expands on her previous guidance, recommending “make-whole relief”, which requires employers to compensate affected employees for any missed opportunities due to these restrictive clauses.
The memo includes a 60-day window, through December 6, 2024, allowing employers to review and amend any stay-or-pay agreements that do not align with this framework, ensuring they are tailored to a legitimate business need. Employers who comply within this period may avoid penalties. While the memo is not binding, any non-compliant provisions could potentially lead to legal action from the NLRB, and affected employees could seek compensation for lost earnings or other damages resulting from these agreements.
