It’s no secret that the Biden administration does not like non-compete agreements. After all, the FTC issued a Final Rule earlier this year that would essentially ban non-competes, even though it has been enjoined by a federal court. The NLRB has also gotten in on the act, saying that overbroad non-compete agreements are unlawful because they chill employees from exercising their collective action rights under the National Labor Relations Act.
Earlier this week, the National Labor Relation Board General Counsel Jennifer Abruzzo said that she intends to prosecute employers who require their employees to sign non-competes and “stay-or-pay” provisions. It’s all in an effort to increase worker mobility and ending employment agreements that force employees to stay at one employer.
What are “Stay-or-Pay” Provisions?
Stay-or-pay provisions are typically employment agreements where the company fronts money in exchange for the employee promising to work for a certain amount of time. If the employee leaves early, then the money must be repaid to the company.
Examples would include sign-on bonuses, advanced education programs, and moving assistance that the company fronts and then require the employee to stay on for an extended period of time. This would also include any kind of “exit fee” that an employee would have to pay upon leaving, generally described as a fee so that the employer can re-coup costs of recruiting and training the departing employee’s replacement.
Why does the NLRB Care About These Employment Provisions?
The NLRB is charged with protecting workers who want to join together to improve their working conditions. Often, this is seen in context of protecting unions, but the NLRB goes beyond unions to protect collective action by workers even if not in a union.
Abruzzo argues that these stay-or-pay provisions suppress union organizing and other mutual aid efforts, including impairing job mobility. The coercive restrictions are not a legitimate business interest, she says.
In my experience from both sides of the employer-employee context is that employees know that they are stuck when they have either the non-compete or stay-or-pay agreements. When it comes to non-competes, the employee knows that their employment options are limited if they want to leave. With stay-or-pay agreements, they have a significant financial burden if they want to leave early. And often both apply even if the company wants the employee gone and fires them without cause.
In practical terms, this means that employees cannot “rock the boat” by asking for raises or promotions, nor to fix wrongdoing within the company. For example, if an employee complains about worker misclassification, saying that the company is inappropriately withholding overtime pay, they could be subject to termination for bringing “drama” to the workplace. Then upon that termination, they would be subjected to repaying any stay-or-pay provisions or obtaining new employment in the same field for a period of time.
The NLRB sees this as illegally restricting the employee rights under the NLRA.
What Does the NLRB say about Non-Competes?
In short, the NLRB is not a fan of non-compete agreement between employers and employees.
In May, Abruzzo released a similar memo that non-compete provisions violate the NLRA in most situations. Specifically, the non-compete agreements interfere with
- Threats to resign to secure better working conditions
- Carry out those threats
- Seek or accept employment with local competitors to secure better working conditions
- Solicit co-workers to leave with them
- Seek employment to specifically engage in protected activity, including union organizing.
Abruzzo argues that the non-compete prevents employees from taking these concerted activities, knowing that they cannot just pick up employment elsewhere. That even the threat of termination without the ability to work elsewhere is enough to violate Section 7.
On June 13, 2024, an administrative law judge ruled that non-compete and non-solicitation provisions violate the National Labor Relations Act. The Judge said that the non-compete agreement would cause a reasonable employee from engaging in protected activities because they are more fearful of being terminated and not being able to pick up new employment with other local companies.
What Should Companies Be Doing Now?
The memo from Abruzzo, both about stay-to-pay provisions as well as non-competes, are not binging legal memos on employers. They do not have the effect of law or rule making. However, they do show the enforcement priorities of the NLRB.
Employers should take the opportunity, before any enforcement action occurs, to review their employment agreements and policies. Do you have any stay-or-pay policies? Do they serve a purpose other than forcing employees to remain employed? Are they narrowly tailored to the legitimate business interest?
To be narrowly tailored, Abruzzo says that these provisions must
- Be voluntarily entered into in exchange for a benefit (cash, education stipend, moving costs, etc)
- Has a reasonable and specific repayment amount
- Has a reasonable stay period
- Does not require repayment if the employee is terminated without cause.
Need someone to help you look over your employment agreements? Springboard Legal offers Fractional General Counsel services for companies looking to get in and stay compliant with the ever changing landscape of employment laws, commercial contracts, and strategic planning.
Build a Company That Employees Want to Work For
As always, my advice to business owners and employers is to build a company and business environment that attracts employees and makes them want to stay.
The biggest things that you can do here are to pay employees well, treat them with respect, and provide career development opportunities. Don’t worry so much about the ping pong table or the beer keg.
When you work to provide a respectful and appreciate workplace, employees won’t need non-competes, stay-or-pay, or other coercive methods to stay. And hint: you’ll be more profitable with happier employees that aren’t forced to be there.
See Also: Most Common Employee Benefits