National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo released a memorandum this week titled “Addressing the Harmful Effects of Non-Compete and ‘Stay or Pay’ Provisions That Violate the National Labor Law labor relations. In the memo, Abruzzo said she intended to urge the board not only to declare certain non-compete and “stay or pay” provisions illegal, but also to remedy any adverse effects caused by these provisions.

As we have already explained in JobsNewsThe NLRB’s general counsel argued that most non-compete agreements violate Section 7 of the National Labor Relations Act (NLRA) and vowed to invalidate almost all non-compete agreements. post-employment competition. This most recent memo further asserts that non-compete agreements prevent employees from exercising their rights to improved working conditions, such as finding better jobs or taking advantage of their options to get a raise. It is important to note that because the NLRB’s jurisdiction includes only employees eligible to be members of a bargaining unit, the scope of the memo applies only to non-managerial employees and would have no impact on agreements with higher-level employees.

Like non-competition agreements, the memo attacks “stay or pay” type provisions. These types of provisions generally refer to “any contract under which an employee must pay his or her employer if he or she leaves employment, voluntarily or involuntarily, within a certain period of time.” Typically, stay or payment arrangements include training reimbursement agreements, education reimbursement contracts, and signing bonuses tied to a mandatory stay period. In the memo, Abruzzo argues that these provisions also infringe on Article 7 rights to the extent that they restrict employee mobility and may discourage protected concerted activities.

To be permitted under the memo, these arrangements must be entered into entirely voluntarily by employees and serve a distinct business interest in recovering the cost of optional employee benefits. Abruzzo “will urge the Commission to conclude that any provision under which an employee must pay his employer if he leaves his employment, voluntarily or involuntarily, within a certain period of time is presumed unlawful,” according to the memo.

Such agreements must also provide for a reasonable and specific reimbursement amount and a reasonable period of stay. In order to rebut the presumption, employers will need to prove that the arrangement was made for a legitimate business interest and be narrowly tailored such that “it is voluntarily entered into in exchange for a benefit, carries a reasonable and specific reimbursement amount, has a reasonable “stay” period and does not require reimbursement if the employee is terminated without cause.”

The memo urges employers not only to rescind illegal non-compete and suspension or payment agreements, but also to compensate employees for any financial losses they suffered as a result of these agreements. Specifically, Abruzzo suggests that comprehensive relief be sought for employees affected by these agreements, including reimbursement for lost wages or costs due to restricted employment opportunities.

Abruzzo says employers will be given a 60-day correction period, beginning October 7, 2024, to review and adjust any existing stay or payment arrangements that do not meet the outlined requirements. Although this guidance does not represent the official position of the entire NLRB, it carries weight. Employers should continue to evaluate all existing employment contracts to determine whether certain provisions could be affected by this guidance, as there will likely be an increase in NLRB investigations into these topics.

The General Counsel’s Memorandum serves as a good reminder for employers to work with legal counsel to understand the risks your organization may face and determine whether such agreements could result in financial penalties under this guidance. Like non-competition agreements, reimbursement agreements such as suspension or payment provisions must be carefully drafted to necessarily protect legitimate business interests.

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