On October 7, 2024, the National Labor Relations Board’s (“NLRB” or the “Board”) General Counsel, Jennifer Abruzzo, released MEMORANDUM GC 25-01, titled “Remedying the Harmful Effects of Non-Compete and “Stay-or-Pay” Provisions that Violate the National Labor Relations Act.” GC Abruzzo states in the memo that she intends to urge the Board to find certain noncompetes unlawful and that certain “stay-or-pay” provisions – such as training repayment agreements, educational repayment contracts, and sign-on bonuses tied to a mandatory stay period – also infringe on employees Section 7 rights.

Noncompetes

As previously reported here, this is not the first time GC Abruzzo has targeted noncompetes. This memo is an expansion of her views from a May 2023 memo in which she pledged to invalidate nearly all post-employment noncompete agreements. Following that memo, in June 2024, an NLRB Administrative Law Judge ruled that non-compete and non-solicitation provisions violate the National Labor Relations Act (“NLRA” or the “Act”).

The GC’s most recent memo argues that noncompete provisions are often “self-enforcing” and thus employees may forgo other opportunities out of fear of breaching the contract. GC Abruzzo argues that noncompetes may have a harmful financial impact by limiting the employee’s job opportunities.

Stay-or-Pay Provisions

Similar to the arguments about noncompetes, the memo states that stay-or-pay provisions like those noted above restrict employee mobility and “increase employee fear of termination for engaging in activity protected by the Act” out of concern that termination would trigger the payment obligation. GC Abruzzo argues that the only stay-or-pay provisions that should be permissible are those that are fully voluntary and work to recoup the cost of optional benefits given to employees. She urges the Board to find any provision that requires an employee to pay their employer if they voluntarily or involuntarily separate from employment within a certain timeframe is presumptively unlawful. GC Abruzzo asserts that an employer can then rebut that presumption with a legitimate business interest and by proving the provision was narrowly tailored in that it: (1) was voluntary in exchange for a benefit, (2) had a reasonable and specific repayment amount, (3) had a reasonable stay period and (4) did not require payment if the employee was terminated without cause.

Remedies

GC Abruzzo suggests that make-whole relief for employees is proper when the Board finds that an employer has an unlawful noncompete provision. The memo states that recission of the offending provision alone is not sufficient and the goal should be to place employees in the same position they would have been without the unlawful provision. The memo contends that, for example, if an individual had to move outside of their geographical region to get employment, then they should be compensated for moving costs. GC Abruzzo further states that when an employer has a voluntary stay-or-pay arrangement with informed consent in exchange for a benefit that nevertheless violates the Act because it is not narrowly tailored in one or more of the ways discussed above, the employer should rescind and replace it with a lawful provision.

In addressing considerations for deciding remedies, GC Abruzzo argues that employees subject to unlawful noncompetes or stay-or-pay provisions should have the opportunity to demonstrate that they were deprived of better employment opportunities and present evidence showing financial harms, and recommends that the Board amend its standard notice posting to solicit relevant information from employees. The memo outlines that an employee would need to demonstrate that: 1) there was a vacancy for a job with a better compensation package, 2) they were qualified for that job, and 3) they were discouraged from applying to or accepting the job because of the noncompete or stay-or-pay provision. GC Abruzzo states that if those elements are proven, the employer must compensate the employee for the difference (in terms of pay or benefits) between what they would have received and what they did receive during the same period.

Takeaways

GC Abruzzo states that she will grant employers a 60-day window beginning on October 7, 2024, to cure preexisting stay-or-pay provisions that advance a legitimate business interest.  GC Abruzzo also states that she will exercise her prosecutorial discretion by declining to pursue cases where a preexisting stay-or-pay arrangement involved a tangible, transferrable benefit (such as an upfront cash payment such as a bonus or relocation stipend or payment for classes to obtain or maintain a credential), even if there is a question about whether the provision was entered into voluntarily, so long as any issues relating to the stay period, repayment amount, or repayment trigger are cured within the 60-day window.

Employers should stay updated on any future Board decisions related to noncompetes and stay-or-pay provisions. We will continue to monitor developments in this area. 

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Photo of Shanice Z. Smith-Banks Shanice Z. Smith-Banks

Shanice is an associate in the Labor Department. Shanice is a member of several of the firm’s Practice Groups, including Investigations, Labor Management Relations and Counseling, Training & Pay Equity. Her practice involves assisting clients in litigations, arbitrations, and administrative proceedings surrounding claims…

Shanice is an associate in the Labor Department. Shanice is a member of several of the firm’s Practice Groups, including Investigations, Labor Management Relations and Counseling, Training & Pay Equity. Her practice involves assisting clients in litigations, arbitrations, and administrative proceedings surrounding claims of unlawful discrimination, harassment, and retaliation. She has experience assisting with workplace investigations, pay equity analyses, and counseling clients on a range of employment matters. Relative to her labor relations practice, Shanice assists with representation proceedings, responding to unfair labor practice charges and counseling clients surrounding union organizing efforts and collective bargaining.

Shanice was awarded one of Proskauer’s Golden Gavel Awards in 2023 celebrating excellence in pro bono work. Shanice’s pro bono efforts focus on criminal justice and immigration work. She earned her J.D. from Loyola University New Orleans College of Law, where immediately upon graduation, Shanice argued a case on behalf of the Loyola Criminal Defense Law Clinic in front of the Louisiana Supreme Court.

Photo of Laura Fant Laura Fant

Laura Fant is a special employment law counsel in the Labor & Employment Law Department and co-administrative leader of the Counseling, Training & Pay Equity Practice Group. Her practice is dedicated to providing clients with practical solutions to common (and uncommon) employment concerns…

Laura Fant is a special employment law counsel in the Labor & Employment Law Department and co-administrative leader of the Counseling, Training & Pay Equity Practice Group. Her practice is dedicated to providing clients with practical solutions to common (and uncommon) employment concerns, with a focus on legal compliance, risk management and mitigation strategies, and workplace culture considerations.

Laura regularly counsels clients across numerous industries on a wide variety of employment matters involving recruitment and hiring, employee leave and reasonable accommodation issues, performance management, and termination of employment . She also advises on preparing, implementing and enforcing employment and separation agreements, employee handbooks and company policies, as well as provides training on topics including discrimination and harassment in the workplace. Laura is a frequent contributor to Proskauer’s Law and the Workplace blog and The Proskauer Brief podcast.

Photo of Joshua Fox Joshua Fox

Joshua S. Fox is a senior counsel in the Labor & Employment Law Department and a member of the Sports, Labor-Management Relations, Class and Collective Actions and Wage and Hour Groups.

As a member of the Sports Law Group, Josh has represented several…

Joshua S. Fox is a senior counsel in the Labor & Employment Law Department and a member of the Sports, Labor-Management Relations, Class and Collective Actions and Wage and Hour Groups.

As a member of the Sports Law Group, Josh has represented several Major League Baseball Clubs in all aspects of the salary arbitration process, including the Miami Marlins, Boston Red Sox, Los Angeles Dodgers, Kansas City Royals, San Francisco Giants, Tampa Bay Rays and Toronto Blue Jays. In particular, Josh successfully represented the Miami Marlins in their case against All-Star Catcher J.T. Realmuto, which was a significant club victory in salary arbitration. Josh also represents Major League Baseball and its clubs in ongoing litigation brought by current and former minor league players who allege minimum wage and overtime violations. Josh participated on the team that successfully defended Major League Baseball in a wage-and-hour lawsuit brought by a former volunteer for the 2013 All-Star FanFest, who alleged minimum wage violations under federal and state law. The lawsuit was dismissed by the federal district court, and was affirmed by the U.S. Court of Appeals for the Second Circuit.

Josh also has extensive experience representing professional sports leagues and teams in grievance arbitration proceedings, including playing a vital role in all aspects of the grievance challenging the suspension for use of performance-enhancing drugs of then-New York Yankees third baseman Alex Rodriguez. Josh also has counseled NHL Clubs and served on the trial teams for grievances alleging violations of the collective bargaining agreement, including cases involving use of performance-enhancing substances, domestic violence issues, and supplementary discipline for on-ice conduct. He has played a key role in representing professional sports leagues in all aspects of their collective bargaining negotiations with players and officials, including the Major League Baseball, National Hockey League, the National Football League, Major League Soccer, the Professional Referee Organization, and the National Basketball Association,.

In addition, Josh has extensive experience representing clients in the performing arts industry, including the New York City Ballet, New York City Opera, Big Apple Circus, among many others, in collective bargaining negotiations with performers and musicians, the administration of their collective bargaining agreements, and in grievance arbitrations.

Josh also represents a diverse range of clients, including real estate developers and contractors, pipe line contractors, hospitals, hotels, manufacturers and public employers, in collective bargaining, counseling on general employment matters and proceedings before the National Labor Relations Board, New York State Public Employment Relations Board and arbitrators.

Josh has also recently served as an adjunct professor at Cornell University’s School of Industrial Labor Relations for the past two years, teaching a course regarding Major League Baseball salary arbitration.

Prior to joining Proskauer, Josh worked for a year and a half at the National Hockey League, where he was involved in all labor and employment matters, including preparations for collective bargaining, grievance arbitration, contract drafting and reviewing and employment counseling. Josh also interned in the labor relations department of Major League Baseball and at Region 2 of the National Labor Relations Board. He was a member of the Brooklyn Law Review and the Appellate Moot Court Honor Society and served as president of the Brooklyn Entertainment and Sports Law Society.