NLRB General Counsel Cracks Down on Stay or Pay Provisions and Calls for Make Whole Remedies

The National Labor Relations Board (NLRB) General Counsel is cracking down on stay-or-pay provisions. Here are takeaways for employers from an October 7 memo:

• Unlawful provisions: The General Counsel said stay-or-pay provisions (e.g., signing bonuses, relocation stipends, training or education reimbursements) that must be repaid if an employee separates within a certain period of time are unlawful under the National Labor Relations Act (NLRA), unless voluntary and narrowly tailored.
• Potential penalties: Employers could face expanded remedies for entering into, maintaining or enforcing non-compete provisions or stay-or-pay provisions deemed unlawful.
• Deadline approaches: Employers have until December 6, 2024, to amend any preexisting stay-or-pay provisions that do not satisfy the NLRB requirements.

As a reminder, the NLRA only applies to non-supervisory employees, and the General Counsel’s memo does not necessarily reflect the position of the NLRB and is not law.

Even so, employers should review existing stay-or-pay provisions and consider taking steps to comply for non-supervisory employee agreements to mitigate risk of an NLRA charge.

Stay-or-Pay Provisions Presumptively Unlawful

In the memo, the General Counsel takes the position that stay-or-pay provisions presumptively violate the NLRA – unless four requirements are met – if they require an employee to repay the employer for certain benefits (e.g., sign on bonus, relocation stipend, training or education reimbursement) if the employee does not remain employed for a specific period. Here are the four requirements:

1. An agreement must be voluntary.
2. The repayment amount must be reasonable and specific.
3. Stay periods must be reasonable.
4. Repayment is not required if the employee is terminated without cause.

In More Detail: The Four Requirements

1. An agreement must be voluntary.

Employees must freely choose to enter into the agreement and suffer no undue financial loss or adverse employment consequences for entering into the agreement.

With respect to cash payments, a stay-or-pay provision is voluntary only if employees are given the option of an up-front payment or deferring receipt of the payment until after the stay period (e.g., one year).

For training and/or educational reimbursements, a stay-or-pay provision is voluntary if training or education is optional, such as where a certain credential, degree or license is required for the employee’s position and the employee may choose between various options offered by third-party vendors to fulfill the requirement, as opposed to employer-specific, employer-provided or employer-arranged training and/or educational courses that an employer requires the employee to attend.

2. The repayment amount must be reasonable and specific.

The repayment amount also must be clearly set forth in the agreement. “Reasonable” means the amount is no more than the cost to the employer of the benefit provided to the employee.

3. Stay periods must be reasonable.

No rule defines a “reasonable” stay period. Generally, however, the greater the benefit provided, the longer the stay period. Lesser benefits require shorter stay periods.

4. Repayment is not required if the employee is terminated without cause.

The agreement must clearly state that the employer will not require repayment if the employee is terminated without cause.

The memo does not define what constitutes “cause.” It does say a provision is unlawfully coercive if it requires repayment if the employer terminates the employee “for any reason whatsoever.”

Next Steps for Employers

The General Counsel intends to pursue employers with pre-existing stay-or-pay provisions that do not meet the requirements outlined above as well as those who enter into such agreements in the future.

Employers have until December 6, 2024, to amend any unlawful stay-or-pay provisions:

• For stay-or-pay provisions that were not entered into voluntarily: The General Counsel’s view is that employers should rescind the provision and notify employees that repayment and employment is no longer required for the stay period (except for in extenuating circumstances).
• If an employee voluntarily agreed to an existing stay-or-pay provision (e.g. they elected to receive it upfront): Employers may remedy unlawful provisions by replacing them with provisions that meet the requirements. For example, if an agreement does not expressly provide that repayment is not required if the employee is terminated without cause, an employer should amend the agreement to clarify that.

Make-Whole Remedies

The General Counsel calls for significant make-whole remedies where an employee did not seek other employment opportunities due to an unlawful stay-or-pay provision and can show:

• A job opportunity existed with better compensation.
• The employee was qualified.
• The employee was discouraged from applying for or accepting the job because of the stay-or-pay provision.

In addition, the General Counsel calls for make-whole remedies for overly broad non-compete provisions. The General Counsel found that rescinding such provisions does not adequately compensate employees for the harmful effect on their wages and benefits.

Want to know more? Ask one of the authors (Christina Bouchot and Amanda MacDonald).