New NLRB Memo Targets Noncompete and Stay-or-Pay Policies: Key Updates for Employers | Kohrman Jackson & Krantz LLP

NLRB General Counsel Jennifer Abruzzo issued GC Memorandum 25-01 on October 7, 2024, announcing her goal to remedy the alleged harmful effects she believes are inherent in overly broad non-compete and stop-or-pay provisions through imposition of increasingly generous solutions.

This Memorandum continues its General Assembly Memorandumissued in May 2023, announcing that, in general, the proposal, maintenance or application of non-compete provisions for non-supervisory employees violates Section 7 of the National Labor Relations Act and urged Regional Offices to challenge them. The complaints were issued in Region 9 (Cincinnati) in Juvly Aestheticsand in Region 25 (Indianapolis) in JO Mory, Inc. Both cases alleged illegal labor practices based in part on non-compete and non-solicitation clauses. In anticipation of this recent Memo, the NLRB also questioned a training reimbursement policy at Juvly Aesthetics. Juvly settled without an NLRB determination. The administrative law judge in JO Mory, Inc. held that the non-compete and non-solicitation clauses were overbroad and unlawful, and that decision remains pending Board review.

Abruzzo challenges the permanence or payment provisions

Similarly, Abruzzo now targets tenure or pay provisions that generally require that an employee who separates from employment must repay an employer for certain company-paid benefits, such as sign-on bonuses, tuition reimbursement, training reimbursement , relocation expenses or other cash payments. the employee separates from employment, voluntarily or involuntarily. It claims that they allegedly infringe on the same Section 7 rights as non-compete provisions because they discourage employees from seeking better working conditions elsewhere by imposing a financial hurdle if they were to leave their job to take a better one. They also cool concerted activity while working. Employees subject to such provisions are less likely to unionize or advocate for labor rights, lest they not only suffer retaliatory layoffs, but now also find themselves out of a job and in monetary debt to their employer.

Abruzzo proposes a test to determine the legitimate provisions of permanence or payment

Abruzzo considers any stay or pay provision, even if entered into voluntarily, to be a presumptive unlawful labor practice (ULP) under Section 7. However, employers can rebut that presumption if they can show that the stay or pay provision promotes a legitimate business interest and is specifically designed to minimize interference with your Section 7 rights. That can be demonstrated by meeting all of the following factors:

• The provision states that it is voluntary.. The stay or pay arrangement must be indicated and entered into voluntarily, meaning that the employee was able to “freely elect” to enter into a stay or pay arrangement without any penalty, whether financial or an adverse employment action, in the event that the decline of the employee. Training reimbursement provisions will satisfy this requirement only if the training is optional for the employee. If training is mandatory, any stay or payment arrangement will not satisfy this requirement. Signing bonus agreements will only satisfy this requirement if the employee is given the option to accept the stay or pay provision or defer payment until the end of the stay period.
• The provision contains a reasonable and specific reimbursement amount.. The reimbursement amount must not be greater than the expense incurred by the employer and must be specified in advance before the employee accepts the agreement.
• The provision establishes a reasonable period of stay.. A reasonable period of suspension will be based on the facts and must be proportional to the amount of the benefit cost.
• The provision states that reimbursement is not required if the employee is terminated without cause. The provision must effectively state that reimbursement will not be enforced if the employee is terminated without cause.

Abruzzo recommends stricter sanctions than full reparation

Abruzzo seeks to impose sanctions not only for enforcing such provisions but also for those indirect damages that, according to her, occur by their mere existence. In their view, these provisions are “self-enforcing” because they may result in employees not taking advantage of other employment opportunities due to a non-compete provision or because quitting will result in payment of debt under such a provision, which which will result in a detrimental financial situation. impact on overall employee wages and benefits. Therefore, it urges that general sanctions for ULPs, such as termination, and even current “comprehensive remedies” may not be sufficient to remedy these “pernicious” harms caused by non-compete agreements and standstill or standstill provisions. pay.

She advocates that any other current or even former employee employed during the six-month period prior to the issuance of a complaint should be allowed to come forward and prove that he or she was also deprived of a better employment opportunity as a result of the non-compete or stay-or-pay provision. Such an employee would be entitled to be compensated by the employer for the difference in compensation and benefits between the employee’s current job and the alternative position during the period of time the provision was effective if the employee could demonstrate:

• there was another better paying job available,
• The employee was qualified for the job, but
• you were discouraged from applying for or accepting the job because of the non-compete provision or the stay-or-pay provision.

It would impose the same remedy in cases where the employer’s provision against moonlighting would deter the employee from seeking a second job. Employees must also be compensated for moving costs if they were forced to relocate outside of the same geographical location and/or retraining costs to avoid violating a non-compete provision.

Proposed New 10(b) Notice

Finally, in both non-compete and suspension or pay situations, she recommends that the Board amend the publication of standard notices required of employers subject to a complaint, to specifically alert employees, through a direct order to the offending employer to mail alert to its employees of these available remedies, including compensation. Such notice will further direct employees to contact the NLRB regional office during the notice period if they have evidence that they have been deterred from seeking or accepting other employment opportunities, if at the time of separation from employment they faced difficulties in finding a job. comparable employment, or if they were discouraged from seeking other employment due to a stay or payment provision.

60-day period to comply with and rectify the suspension or payment provisions

Finally, Abruzzo grants employers a 60-day “window” from the date of this Memorandum to cure any pre-existing demurrage or payment arrangements that advance a legitimate business interest in order to avoid the issuance of a complaint. Proposed cures include:

• If a stay or payment provision includes a reimbursement amount that is greater than the benefit received by the employee, the employer must reduce it to an amount equal to or less than the cost and notify the employee of the new reimbursement amount.
• If a period of stay is excessively long, the employer must shorten it to a reasonable duration and notify the employee of the new period of stay.
• If the stay or pay provision requires reimbursement even if the employee is terminated without cause, the employer must modify the provision and clarify that it does not cover termination without cause and notify the employee of the amendment.
• If any proceeding is pending at the time of issuance of this Memorandum, the employer must modify its claim for reimbursement within sixty days to satisfy this test by (i) reducing the amount requested to no more than the value of the benefit conferred ( ii) dismiss any claim if the stay was excessively long and the employee has already served a reasonable period of stay, or dismiss any claim if the employee was terminated without cause.

For those pre-existing provisions that do not advance a legitimate business interest, she will decline to process if, within this 60-day period, the employer has canceled the debt owed, notified the employee that the obligation to pay the debt no longer exists. , retracted any debt collection enforcement actions and, if the employee has paid part of the debt, returned those amounts to the employee.

Abruzzo fully intends to prosecute (i) any pre-existing suspension or payment provision that fails to meet the above tests and seeks retroactive application and (ii) any proposal, maintenance or enforcement of any illegal suspension or payment agreement that has been entered into. celebrated. after the issuance of this Memorandum.

What employers should consider now

Abruzzo’s 60-day deadline ends on December 6, 2024. Although its Memorandum is not binding law, it strongly announces the intended purpose and treatment of non-compete and stay-or-pay provisions. Given their predilection for targeting such provisions and the recent complaints filed by the Board, employers may want to assess their comfort level with risk and immediately begin reviewing current tenure or pay agreements or policies, as well as provisions of non-compete to make sure they comply. the proposed test and, if necessary, take corrective measures as set out above.

The recent positions taken by the General Counsel of Abruzzo in relation to employment policies, together with the Board’s inclination to follow its recommendations and file complaints, may cause confusion and leave employers wondering what to do next.