NLRB May Prosecute Employers Who Require Workers To Sign Non-Compete And Stay To Pay Provisions

On Oct. 7, U.S. National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo issued a memo to field offices that expanded on a May 2023 NLRB memo that argued “overbroad non-compete agreements are unlawful” because they keep “employees from exercising their rights under Section 7 of the National Labor Relations Act.” In the most recent memo, Abruzzo outlined her plans to prosecute employers who require their employees to sign non-compete and “stay-or-pay” provisions.

Abruzzo also said her office would “remedy the harmful monetary effects employees experience as a result of these provisions.”

Specifically, the memo outlines a proposed framework for assessing the lawfulness of a range of “stay-or-pay” provisions, including training repayment agreement provisions (sometimes referred to as TRAPs), educational repayment contracts, quit fees, damages clauses, sign-on bonuses, or other types of cash payments tied to a mandatory stay period, and other contracts under which employees must pay their employer in the event that they voluntarily or involuntarily leave their job.

“Stay-or-pay provisions have serious potential for suppressing union organizing and other concerted activity for mutual aid or protection, including by impairing job mobility,” Abruzzo said. “Employers have used these provisions as coercive restrictors of employee mobility, which is not a legitimate business interest. I believe such provisions must be narrowly tailored to minimize that infringement on Section 7 rights in order to respect the rebalance of ‘economic power between labor and management’ Congress sought in passing the Act.”

The memo does articulate circumstances under which employers can rework preexisting stay-or-pay arrangements to avoid prosecution.

According to Reuters, approximately 20 percent of U.S. workers, or 30 million people, have signed non-compete agreements. Read more about the NLRB General Counsel Abruzzo’s new framework at this link.

As a reminder, in April the Federal Trade Commission (FTC) banned most non-compete agreements, but four months later, a federal judge in Texas blocked the prohibition from taking effect. The FTC is appealing that ruling.