On October 7, National Labor Relations Board General Counsel Jennifer Abruzzo issued Memorandum GC-2501, attacking both non-compete agreements and “stay-or-play” provisions, such as signing bonus or training costs that must be repaid to an employer if an employee separates within a certain period of time.

Abruzzo argues that non-compete agreements may restrict employees’ freedoms and keep wages down; these are not new arguments, and the National Labor Relations Board (NLRB) and Federal Trade Commission have made them before. However, Abruzzo goes a step further here and argues that simply rescinding non-compete agreements is not enough – she argues that employers must pay employees financial compensation to make them whole.

Specifically, she argues that if employees can come forward and demonstrate they passed up better job opportunities because they were bound by a non-compete agreement, their employers should be liable to them for the difference in pay. 

Similarly, a terminated employee who could not accept a new position because of a non-compete agreement could prove they were entitled to remuneration – and should be paid – for the jobs they could not accept. Abruzzo also noted that employees should be compensated for costs an employee has to incur, such as retraining, to move into a field not covered by the non-compete agreement. Obviously, these financial burdens for employers would go well beyond previous efforts to simply render non-compete agreements unenforceable.

Abruzzo also targeted stay-or-pay provisions that require employees to repay certain bonuses or costs if they leave employment within a certain period of time. Abruzzo claimed these provisions limited employee freedom and chilled employees’ ability to complain about their job conditions out of fear of being terminated and required to repay their signing bonuses or training costs. 

She recommended that these provisions be limited to truly voluntary circumstances in which an employee is permitted to refuse the provision with no adverse consequences. Such agreements also must have a reasonable and specific repayment amount and a reasonable stay period. 

As such, employers could not use such provisions for mandatory training and could not require repayment of more than the actual costs of such training. Employees also could not be required to make repayment if terminated without cause. To enforce the reasonableness of such provisions, Abruzzo states that repayment obligations should be erased where an agreement is not in compliance and, similar to her guidance on non-competes, employees should be entitled to damages if such a provision deprived them of better job opportunities.

These recommendations are not currently the law of the land. However, given Abruzzo’s strong show of intent, employers should expect the NLRB to scrutinize non-compete agreements and stay-or-pay provisions, and in time these recommended penalties may be adopted. Employers can get ahead of these penalties by examining the agreements they have with their employees and determining whether they would result in financial penalties under Abruzzo’s guidance.