On October 7, 2024, National Labor Relations Board General Counsel (GC) Jennifer Abruzzo issued GC Memorandum 25-01, consisting of two parts. First, the GC urges the NLRB to provide make-whole relief to employees if the Board finds that non-compete provisions violate the National Labor Relations Act (the “Act”). Doubling down on her prior commitment to challenge non-competes (as articulated in GC Memo 23-08), the recent memo clarifies what remedies the GC will seek when an employer imposes a non-compete on its employees. Second, the GC asserts that certain “stay-or-pay” arrangements infringe employees’ Section 7 rights in the same ways non-competes do and therefore violate the Act unless narrowly tailored.

GC Proposes New Remedies for Non-Competes

Notwithstanding the NLRB’s longstanding practice of ordering rescission of unlawful workplace rules or contract terms to remedy unfair labor practices, GC Abruzzo now claims make-whole relief is necessary to remedy illegal non-competes consistent with Board law. The GC says rescission alone is inadequate because non-compete provisions have reduced employee wages and benefits by restricting job opportunities. Per the GC, this financial impact also includes relocation costs to avoid the geographic scope of a non-compete, taking a lower-paying job rather than one in the employee’s field, or paying for training to qualify for a position not covered by the non-compete. Citing examples where the Board has ordered compensation for employer-caused injury and reimbursement for damage to personal employee property, GC Abruzzo recommends that the Board add to its standard notice posting the solicitation from employees and former employees of information on which to base financial remedies. GC Memo 25-01 recommends that the Board amend its standard notice to:

(1) alert employees that they may be entitled to a differential (in terms of wages or benefits) if they were discouraged from pursuing, or were unable to accept, other job opportunities due to the non-compete provision;

(2) notify individuals who separated from the employer since the start of the Section 10(b) period (i.e., six-month statute of limitations) that they may be entitled to compensation if they had difficulty securing comparable employment until the non-compete expired (i.e., being unemployed longer, accepting a job with a lower compensation package, moving outside the provision’s geographic scope, or incurring retraining costs to become qualified for jobs in a different industry); and

(3) include language directing individuals to contact the regional office during the notice-posting period if they have evidence related to the above two components.

The most consequential aspect of the memo for employers may be the GC’s intent, expressed in footnote 5, to penalize efforts by employers to enforce their rights under non-competes. Where an employer brings a legal action to enforce what the GC determines to be an unlawful non-compete, the GC urges the NLRB to order that the employer  dismiss the action and pay the legal fees and costs incurred by an employee to defend against that action. The timing of this unprecedented fee-shifting remedy is curious given that the Federal Trade Commission’s non-compete ban was set aside by Ryan, LLC v. FTC, No. 3:24-CV-00986-E, 2024 WL 3879954 (N.D. Tex. Aug. 20, 2024) less than two months ago.

Despite the GC’s well-publicized position that they should be declared illegal, the Board has not yet ruled on the lawfulness of non-competes and related provisions as described in GC Memo 23-08.  Two recent NLRB administrative law judge decisions, however, have produced varied results.

GC Proposes Framework for Analyzing “Stay-or-Pay” Provisions

The term “stay-or-pay” generally refers to a contract under which an employee must pay the employer if the employee separates from employment, voluntarily or involuntarily, within a certain timeframe. While these contracts may take a variety of forms, GC Memo 25-01 identifies the following examples: training repayment agreements, educational repayment contracts, quit fees, damages clauses, sign-on bonuses, and other types of cash payment tied to a mandatory stay period. In the memo, GC Abruzzo opines that all such agreements are presumptively unlawful. To rebut the presumption of illegality, the GC says employers must demonstrate that the provision/agreement at issue:

(1) is 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.

All four factors must be satisfied for the “stay-or-pay” arrangement to be lawful under the Act based on the GC’s interpretation. Expanding on the four factors, the GC explained:

First, the arrangement must be fully voluntary. For training repayment agreements, this means that the training cannot be mandatory. For cash payments such as relocation or retention, employees must be “given the option between taking an up-front payment subject to a stay-or-pay or deferring receipt of the same bonus until the end of the same time period.”

Second, the amount will be considered “reasonable and specific” if the repayment amount is “no more than the cost to the employer of the benefit bestowed,” and the debt amount is specified up front.

Third, determining whether the “stay” period is reasonable will be fact-specific and based on several factors.

Fourth, the provision/agreement must state that the debt will not be due if the employee is terminated without cause.

If the Board adopts the GC’s view that “stay-or-pay” agreements are unlawful, GC Abruzzo recommends two types of remedies. If an agreement is voluntarily entered into but is not narrowly tailored according to her four-part test, the GC recommends replacement of problematic aspects of the agreement with lawful provisions. However, for non-voluntary “stay-or-pay” arrangements, the GC would seek rescission and a requirement the employer notify employees that the stay obligation is eliminated and the debt is forgiven. The GC also recommends amending the Board’s notice language and the make-whole relief akin to what GC Memo 25-01 urges for unlawful non-competes.

Employer Takeaways

While GC Memo 25-01 has no binding legal effect on how the NLRB will resolve these issues, GC Abruzzo has made her prosecutorial approach clear as it pertains to non-competes and “stay-or-pay” arrangements. She is expected to instruct the various Regions of the NLRB to seek the specific non-compete remedies in new and existing cases and to bring complaints seeking to invalidate “stay-or-pay” arrangements consistent with GC Memo 25-01. Not only does GC Abruzzo view these types of agreements as presumptively unlawful, but she is also advocating the addition of novel provisions to longstanding NLRB remedies. Although GC Abruzzo intends to invalidate non-competes and “stay-or-pay” provisions with retroactive effect, she recognizes that her proposed “stay-or-pay” framework contains new requirements and suggests giving employers a 60-day window from the date of GC Memo 25-01 to cure preexisting “stay-or-pay” arrangements that advance a legitimate business interest.

While GC Abruzzo’s Memo is an aspirational articulation of how she believes the law should be developed, rather than the current state of the law, employers should expect that these agreements will receive careful attention when they come before the NLRB. They should also expect the Regions to follow the GC’s lead by issuing complaints claiming that many of these agreements violate Section 7 of the Act. Employers can still advocate the position that these agreements do not violate the NLRA, but such litigation is likely to be lengthy and costly.  Given the scrutiny that GC Abruzzo intends for interpretation of non-competes and “stay-or-pay” arrangements going forward, we recommend consulting with an attorney to review your employee contracts.