National Labor Relations Board Targets Non-Compete and Stay-or-Pay Agreements

The Morgan Brown & Joy firm reports that National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo said that most stay-or-pay agreements violate the National Labor Relations Act, and employees affected by unlawful non-compete provisions are eligible for relief. 

Stay-or-pay provisions require employees to repay an employer if they leave their position within a set period, whether voluntary or involuntary. Abruzzo argues that these provisions are “presumptively unlawful” unless they are narrowly tailored to protect legitimate business interests and meet specific criteria: a voluntary basis, a reasonable stay duration and repayment amount, and the exclusion of repayment if the employee is terminated without cause. 

An NLRB memorandum builds on Abruzzo’s guidance against restrictive agreements and seeks to impose stricter standards and penalties on employers utilizing stay-or-pay and non-compete provisions deemed unfair.

Abruzzo’s recommendations include modifying or rescinding unlawful stay-or-pay terms, notifying employees of their rights, and making employees financially whole if employers attempt to enforce these provisions unlawfully. 

Additionally, Abruzzo emphasized make-whole relief for employees impacted by non-compete provisions, marking a departure from the Board’s usual practice of rescinding unlawful terms as a remedy.

While not a legal ruling, this memorandum reflects the NLRB General Counsel’s intent to pursue stricter scrutiny and enforcement against restrictive employment agreements that might deter NLRA-protected rights.

Abruzzo advocates for remedies beyond rescission for employees impacted by unlawful non-competes, suggesting financial compensation when employees can show they missed job opportunities due to the restrictive terms.

Corporate legal teams should note this National Labor Relations Board memorandum as an indicator of heightened scrutiny of employer agreements. Employers should review and potentially revise stay-or-pay and non-compete agreements to ensure compliance with Section 7 of the NLRA, considering the memo’s December 6, 2024 deadline for making adjustments.