General Counsel Abruzzo Issues Memo on Seeking Remedies for Non-Compete and Stay-or-Pay Provisions

Today, NLRB General Counsel Jennifer Abruzzo issued a memo to all field offices, expanding on her May 2023 memo stating her position that overbroad non-compete agreements are unlawful because they chill employees from exercising their rights under Section 7 of the National Labor Relations Act, which protects employees’ rights to take collective action to improve their working conditions.

In today’s memo, GC Abruzzo’s lays out her intent to not only prosecute employers who require that their employees sign non-compete and “stay-or-pay” provisions, but to, as fully as possible, remedy the harmful monetary effects employees experience as a result of these provisions. The memo outlines her 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 separate from employment. Finally, the memo explains the circumstances under which employers can cure preexisting stay-or-pay arrangements to avoid prosecution.

“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,” said General Counsel Jennifer Abruzzo. “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.”

On June 13, 2024, an NLRB Administrative Law Judge ruled that non-compete and non-solicitation provisions violate the National Labor Relations Act. Earlier this year, NLRB Region 9 in Cincinnati obtained a settlement involving non-compete and training repayment provisions which restricted employee mobility. The NLRB GC has also created a know your rights card for workers who may be subject to unlawful employment agreement provisions.

GC Abruzzo has also entered into memoranda of understanding with the Department of Justice’s Antitrust Division, the Federal Trade Commission, and the Consumer Financial Protection Bureau in order to advance a whole of government approach to the anticompetitive and unfair effects of restrictions on mobility.