NLRB Confirms Its Focus on Noncompetes and Repayment Obligations

On October 7, 2024, the General Counsel of the National Labor Relations Board (“NLRB”) issued her latest memorandum, GC 25-01, regarding the legality of non-compete and “stay-or-pay” provisions under the National Labor Relations Act (“NLRA”). The memorandum expands on the General Counsel’s prior position that most non-compete agreements violate the NLRA, as we previously reported on here, and introduces a new framework for analyzing “stay-or-pay” provisions.

Key Takeaways from GC 25-01

The General Counsel argues that both non-compete and certain “stay-or-pay” provisions violate the NLRA by restricting employee mobility and chilling Section 7 rights, such as union organizing and concerted activity. Under the General Counsel’s theory, if employees are subject to post-employment restrictions and repayment obligations, employees may be less willing to engage in protected activities in their current workplaces, such as protesting wages, hours, and working conditions.

Non-Compete Provisions

GC 25-01 builds on the General Counsel’s critique of non-compete agreements articulated in GC 23-08. The new memorandum emphasizes the “self-enforcing” nature of non-compete provisions, arguing that employees may forgo job opportunities out of fear of violating these agreements, even without formal enforcement actions by employers. The General Counsel advocates for remedies beyond simply rescinding unlawful non-competes, including make-whole relief for employees who can demonstrate they lost better job opportunities due to the restrictions. Recently, as a result of the General Counsel’s efforts to attack non-compete provisions, some NLRB Administrative Law Judges have found that certain non-compete provisions violate the NLRA. See, e.g., J.O. Mory, Inc., Case No. 25-CA-309577, 2024 WL 3010808 (Jun. 13, 2024).

“Stay-or-Pay” Provisions

Additionally, GC 25-01 introduces for the first time a new framework for analyzing “stay-or-pay” provisions. These provisions require employees to pay their employer if they leave within a certain timeframe and can take various forms, including training repayment agreement provisions (“TRAPs”), sign-on bonuses with clawback provisions, and quit fees. The General Counsel argues that such provisions are presumptively unlawful unless narrowly tailored to meet specific criteria.

The General Counsel’s criteria include:

• Voluntary Agreement: The provision must be truly voluntary, meaning employees can decline without adverse consequences. This is particularly relevant for training repayment agreements, where the training must be optional for the agreement to be considered voluntary. For cash payments like sign-on bonuses, employees must have the option to defer receipt until the end of the stay period. 
• Reasonable Repayment Amount: The repayment amount cannot exceed the actual cost of the benefit to the employer. The amount must also be specified upfront.
• Reasonable Stay Period: The length of the stay period must be reasonable, considering factors like the cost of the benefit, its value to the employee, and the employee’s income. 
• No Repayment for Termination Without Cause: The provision cannot require repayment if the employee is terminated without cause, including for engaging in protected activity. 

Cure Period

In GC 25-01, the General Counsel recognizes that the new framework contains new, specific requirements. As such, she noted that she is granting employers a 60-day window from the issuance of the memo (until December 6, 2024) free from prosecution, to cure any preexisting stay-or-pay arrangements that do not align with the criteria outlined above.

GC 25-01 in Context

It is important to note that the General Counsel’s memorandums are not legally binding.  Essentially, GC 25-01 outlines a litigation priority of the NLRB and foreshadows the arguments the agency will make during litigation if it has the opportunity to do so.

Additionally, note that the General Counsel is a presidential political appointee.  The upcoming election may affect who will serve in the role.  If a new political party takes the presidency, it is likely that a new General Counsel will be appointed in January 2025.  Should this happen, the requirements in GC 25-01 (and likely all of those articulated since January 2021) are poised to be abandoned or reversed.

Implications for Employers

Employers should be prepared for increased scrutiny of restrictive covenants in employment agreements, pending the outcome of the election.  To prepare, employers should review their existing employment agreements with non-compete and “stay-or-pay” provisions to assess potential legal risks. If you have any questions, please feel free to connect with a Honigman Labor and Employment Attorney here.