Jennifer Abruzzo, the National Labor Relations Board’s (NLRB) General Counsel, is continuing her campaign against non-compete agreements. She just issued a memo announcing her office will seek more remedies for employees who are required to sign non-compete agreements. This follows previous statements in which she said non-compete agreements, which affect about 20% of US workers (30 million people), are unlawful. She has expanded her argument to include “stay-or- pay” provisions, stating they restrict workers’ job opportunities which (somehow) discourages unionizing.
Non-Compete Agreements
The NLRB is currently considering the legality of non-compete agreements under the National Labor Relations Act (NLRA) in a case involving an Indiana HVAC company. In a 2023 memo, Abruzzo explained why overbroad non-compete agreements are unlawful. She explained they hinder an employee’s ability to exercise their rights under Section 7 of the NLRA, which protects employees’ rights to take collective action including unionization.
Abruzzo’s agenda has faced setbacks. In April 2024, the Federal Trade Commission (FTC) largely noncompete agreements, with some exceptions, however the ban was subsequently blocked by a Texas Federal Judge. The FTC is currently appealing this decision.
Stay-or-Pay Provisions
Abruzzo is simultaneously pushing for the NRLB to rule that stay-or-pay agreements are generally illegal, unless an employer can show that it “advances a legitimate business interest.” These provisions require employees to pay their employer if they leave or are fired within a specified timeframe. They are typically some form of repayment for costs the employer incurred in onboarding the employee, such as training/education, quit fees paid to the former employer, sign-on bonuses, retention bonuses, etc. These sums can reach thousands of dollars.
Abruzzo described the detrimental impact stay-or-pay provisions have on workers by saying “employees are chilled from engaging in protected activity to try to better their working conditions in their current job … for fear that termination would trigger the payment obligation.” The protected activities include the right to organize, join a union, or collectively quit if employers are continually ignoring complaints.
Expanded Remedies
A focal point of Abruzzo’s recent memo was the expansion of remedies for these cases. She wrote the NLRB would prosecute employers who require workers to sign these types of agreements, with the “goal [of placing] employees in the same position, as nearly as possible, in which they would have been had the employer not maintained the unlawful provision.”
The memo outlined scenarios in which an employe may be awarded lost wages by the Board. The employee or former employee must demonstrate that due to their noncompete agreement they were unable to or discouraged from applying to a specific role for which they were qualified. Essentially, the noncompete agreement must have put the employee out of work for longer than they would have been without the agreement.
The NLRB is also pushing for an expansion of remedies for workers illegally fired or subject to unlawful labor practices. This is nothing new. In the 2022 case Thryv Inc, the NLRB ruled employers are liable for any “direct or foreseeable” financial harms to employees which derive from the illegal conduct. This is potentially a tremendous expansion of the damages the NLRB normally awards. This is currently being challenged on constitutional grounds by a number of companies including Starbucks.
Employer Takeaways
Regarding non-compete agreements, employers should critically evaluate why the agreements are needed, especially if the workers are hourly paid and even if they are exempt but still focused on production for the employer. While we do not know if the General Counsel will successfully prosecute these cases, we also know the courts do not generally favor such agreements for production-related workers. Regarding stay-or-pay provisions, employers should ensure such provisions serve a legitimate business interest and are reasonable, as Abruzzo has indicated she is keen to prosecute employers on this front. Finally, employers should consult with legal consul before attempting to enforce these agreements and entering into new such agreements.
Brody and Associates regularly advises its clients on all labor management issues, including union-related matters, and provides union-free training. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.