Although employers are presently out from under the Federal Trade Commission’s rules against non-compete agreements, the National Labor Relation Board (NLRB) is now challenging such agreements, under of all things, the National Labor Relations Act (NLRA). NLRB General Counsel, Jennifer Abruzzo, asserts that by restricting a worker’s right to take a job with a competitor of their employer, non-compete agreements are a threat to the free labor market. They stifle employees’ ability to find better working conditions while under the non-compete agreement’s terms.

It is estimated that up to 20% of workers or 30 million people have signed non-compete agreement with their employers.

NLRB General Counsel Abruzzo has identified another type of worker agreement that, while less common than non-compete agreements, is now viewed as equally violating the NLRA. These are called stay-or-pay agreements, and it's estimated that about 1 in 12 employees might be bound by such an agreement.

These are agreements that in exchange for certain training or education the employer pays for, the employee agrees to work for the employer for a set time. If the employee leaves before the agreed upon to time, the employee must pay the employer back for some or all of the training or returns a signing bonus they may have been paid upfront. This type of agreement is sometimes used by hospitals with nurses and other positions requiring advanced and expensive training.

Jennifer Abruzzo sees this as just another form of non-competition and believes this type of agreement also restricts a worker’s job opportunities, and in turn discourages union organizing.

Last week GC Abruzzo issued a new memo (GC Memorandum 25-01) stating the NLRB would prosecute employers that require employees to sign either or both a non-compete and stay-or-pay agreements. The remedy she will seek would not only be to have the agreements nullified, but she will also seek monetary relief if shown the workers were out of work for a longer period of time than they otherwise would have been without being under such an agreement. The remedy could include payment of back wages or other lost income or other make-whole remedies for any “direct or foreseeable” monetary harms that arose from the illegal conduct.

The memo states that stay-or-pay agreements would only be legal if the employee voluntarily enters into one for a benefit (additional training); the repayment cost is reasonable and specific: the employee is required to only stay for a “reasonable stay period” to in turn excuse the obligation to repay; and the employer does not require repayment if the worker is fired without cause.

Most employers, not all, normally reserve the use of non-compete agreements to their exempt and executive ranks. The NLRB does not normally engage in pursuing agreements that cover employees that are not covered by the NLRA. Those employees are normally hourly and non-exempt workers. A few years ago, a sub sandwich shop, which shall remain nameless, put their sandwich makers under non-compete agreements that prevented them from taking a job at other fast-food shops within a short radius of the sub-shop. That was one of the situations that caused the NRLB to look closer at non-competes.

The NLRB is being challenged on this and other enforcement positions by some big players. Starbucks and Macys are challenging whether the NLRB, due to its internal courts that are unaccountable to pretty much any outside challenge, is a violation of the companies’ constitutional right to a jury trial. Other companies are challenging the NLRB’s itself as unconstitutional.

General Counsel Memorandums do not have the force of law to otherwise change NLRB law. It is just a legal position. But it does point in the direction of what the NLRB will try to enforce against employers that use these agreements. Employers are advised to inventory their worker agreements to see where these agreements are in use as well as continue to monitor the enforcement activity of the NRLB and the activity of the Courts where these agreements are being challenged.

Sources:

NLRB’s Abruzzo Says Companies Should Pay for Requiring Non competes, Stay-or-Pay’ Pacts, Reuters (10/7/2024)

New Memo May Rein In ‘Stay or Pay’ Schemes. LAW360 Employment Authority. (10/8/24)

NLRB GC to Seek Broad Remedies for Non-Compete and Stay-or-Pay Provisions – Part I. Shawe Rosenthal LLP (10/11/24)