Earlier this month, the NLRB’s General Counsel issued Memorandum 25-01 explaining how she intends to enforce her existing position that non-compete agreements generally violate the NLRA. She expands upon this policy to also target as “presumptively unlawful” common agreements where employees must repay their employer if they resign before a certain date, such as educational reimbursement, relocation reimbursement and signing bonuses. Nonetheless, if the employer shows that the agreement was truly voluntary and optional, and does not require repayment if the employee is terminated without cause, it may still be enforced. She also expands “make whole” remedies by requiring employers to compensate employees upon a simple showing that there was a better paying job elsewhere for which they were qualified – regardless of whether they would have been the best qualified or actually hired. In short, an unlimited number of employees may be entitled to compensation even if there was only one potential job opening. Nonetheless, she does not intend to begin enforcement against stay-or-pay provisions for 60 days in order to give employers the opportunity to rescind or modify such provisions that do not satisfy her four-part test below).
According to the Memorandum, these types of provisions
(non-competes and stay-or-pay) chill employee’s rights to seek better paying jobs
regardless of whether the employer seeks to enforce them in court. They may forgo seeking or obtaining a better
paying job or accept a lower-paying job outside their field or in a different geographic
area.
The Memorandum recommends that employers be required to
compensate employees whose rights were chilled as long as the employee can
identify a single job vacancy for which they were qualified which offered
better pay and/or benefits than their current job but which they were
discouraged from seeking because of the non-compete or stay-or-pay provision. Worse still, even if the employee cannot
identify such a position – because they presumably were not looking for another
job because of the non-compete, the NLRB can still order the employer to
compensate the employee:
If the individual cannot point to
specific comparator job opportunities within the industry because they were not
pursuing them as a result of the non-compete, the Region may use other evidence
to provide a within-industry earnings estimate.
There is no limit on the number of employees who could seek
compensation from a single job opening. This same compensation system would exist for
employees who (i) obtained lower paying jobs outside their industry within the
geographic scope of the non-compete clause, or (ii) moved to a job outside the
geographic scope of the non-compete clause.
As for stay-or-pay agreements, the GC targets agreements
requiring the repayment of tuition, training, relocation expenses or signing
bonuses which are tied to a mandatory stay period. However, she concedes that narrowly tailored
agreements which are truly voluntary can be enforced, except which the employee
is involuntarily terminated without cause. She will be seeking the NLRB to find these
types of agreements to be presumptively unlawful. However, the
employer may rebut that presumption
by proving that the stay-or-pay provision advances a legitimate business
interest and is narrowly tailored to minimize any infringement on Section 7
rights, that is, the provision: (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. . . .
. . . employees must be permitted to freely
choose whether to do so and may not suffer an undue financial loss or adverse
employment consequence if they decline—and must be in exchange for a benefit
conferred on the employee.35 Ensuring that employees choose, of their own free
will, to enter into such provisions is essential to minimizing any interference
with Section 7 rights. If a stay-or-pay arrangement is optional, employees who
are worried about retaliation for engaging in protected activity may opt not to
enter into such an arrangement, thereby allowing them to exercise their
statutory rights as freely as any other employee. In contrast, if employment is
conditioned on a stay-or-pay arrangement, employees have no ability to preserve
their Section 7 rights in this manner. . . .
Training repayment agreements with
a stay-or-pay provision satisfy this proposed criterion so long as the training
is optional. In many cases, an employer offers to pay for training or
educational opportunities that an employee voluntarily elects to pursue with
the understanding that the employee will “pay” costs back through continued
employment for a given time period instead of paying for the program out of
their own pocket (and repay the employer if the employee does not stay for the
requisite period). . . . For example, if an employee needs a certain credential
to be eligible for promotion, a stay-or-pay arrangement to finance that
undertaking would be permissible. Likewise, subsidies covering the cost of
classes or courses necessary to obtain or maintain a mandatory credential for
an employee’s current job, such as a degree, license, or certification
(“credential”), may be conditioned on a stay-or-pay provision if the classes
are selected at the employee’s discretion from any third-party vendor, that is,
the employee is not forced to take the classes through the employer. A
stay-or-pay is voluntary in such situations because an employee could pay out
of pocket in lieu of entering into a stay-or-pay arrangement. Doing so would
amount to a justifiable financial burden since employees expect to bear such
costs to gain and keep a credential that is portable to other jobs within the
industry, and they can shop around based on price. Additionally, where
educational degrees are concerned, employees typically have other financing
options beyond becoming indebted to their employer and, thus, employees would
not be compelled to accept a stay-or-pay to fund their educational pursuits.
While not strictly required, it would be advisable to make the voluntary nature
of the arrangement explicit in the contract, e.g., by stating that the training
or credential is not mandatory or that the employee has the option of obtaining
a mandatory credential from a third-party vendor instead of via the employer.
In contrast, a stay-or-pay
arrangement that is tied to mandatory training—that is, orientation sessions,
on-the-job training or other specific instruction that the employer requires an
employee to attend—cannot satisfy this proposed criterion. In practice,
employees are typically given no choice as to whether to enter into stay-or-pay
agreements in exchange for training their employer mandates. The only way to
inject “choice” into such an arrangement is to give employees the option of
paying for the mandatory employer-specific, employer-provided or
employer-arranged training upfront instead of entering a stay-or-pay—a choice
that would be illusory. . . .
With respect to cash payments, such
as a relocation stipend or sign-on bonus, in my view a stay-or-pay provision
can only be considered fully voluntary if employees are 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. Only in this
way can employees who anticipate possibly engaging in protected concerted
activity avoid becoming indebted to their employer without a significant
financial downside. If the only alternative was to decline the cash payment
outright, that “choice” would be illusory because no reasonable employee would
do so, and if they did, it would amount to paying their employer in order to
safeguard their Section 7 rights by foregoing money that will remain in the
employer’s account. . ..
. . .
A reasonable and specific repayment
amount: In order to be lawful, the repayment amount must be reasonable, that
is, no more than the cost to the employer of the benefit bestowed, and the debt
amount must be specified up front. Where the repayment amount is greater than
the cost to the employer, the true purpose of the provision is no longer
legitimate recoupment but rather coercive restriction of employee mobility,
which, as noted above, is not a legitimate business interest. . . .
“Where the repayment requirement appears to be for the
purpose of recouping the cost of bestowed benefits based on the contract
language, but the surrounding circumstances undercut that legitimate
justification and demonstrate that the real purpose is to force employees to
stay against their will, the provision is unlawful without further analysis.”
Finally, the GC recommends that the NLRB amend its notices
to alert current and former employees who are or were subject to non-compete
agreements that they may be entitled to compensation. They would have 6 months to file an unfair
labor practice charge with the NLRB.
NOTICE: This summary is designed merely to inform and alert
you of recent legal developments. It does not constitute legal advice and does
not apply to any particular situation because different facts could lead to
different results. Information here can change or be amended without notice.
Readers should not act upon this information without legal advice. If you have
any questions about anything you have read, you should consult with or retain
an employment attorney.
