As previously reported, a federal judge recently judge struck down the Federal Trade Commission’s (FTC) proposed rule banning non-compete agreements and blocked its enforcement on a national basis. That ruling, which has been appealed to the Fifth Circuit, has not deterred the National Labor Relations Board (NLRB), which continues to take the position that non-compete agreements are unlawful under Section 7 of the National Labor Relations Act (NLRA).

NLRB General Counsel Jennifer Abruzzo issued a memorandum on May 30, 2023, to all NLRB field offices setting forth her position that “the proffer, maintenance, and enforcement” of non-compete agreements violates the NLRA “except in limited circumstances.” GC Abruzzo explained that such provisions unlawfully chill employees from engaging in the following types of protected activity: (1) threatening to resign to secure better working conditions; (2) carrying out concerted threats to resign or otherwise concertedly resigning to secure improved working conditions; (3) concertedly seeking or accepting employment with a competitor to gain better working conditions; (4) soliciting co-workers to work for a competitor as part of a broader course of protected concerted activity; and (5) seeking employment, at least in part, to specifically engage in protected activity such as union organizing.

GC Abruzzo also issued a memorandum on October 7, 2024, setting forth her position that certain “stay or pay” provisions violate Section 7 unless they are narrowly tailored to minimize infringement on the employee’s rights. “Stay-or-pay” provisions require employees to repay their employer if their employment ends—whether voluntarily or involuntarily—within a specified timeframe. These provisions are commonly included in tuition reimbursement agreements, training repayment agreements, sign-on bonuses and retention bonuses.

GC Abruzzo argues that stay-or-pay provisions, like non-compete agreements, “both restrict employee mobility, by making resigning from employment financially difficult or untenable, and increase employee fear of termination for engaging in activity protected by the Act.” GC Abruzzo went on to state that only provisions that seek to recoup the cost of optional benefits bestowed on employees and meet other requirements are legally permissible.

GC Abruzzo’s October 7th memorandum sets forth significant “make-whole” remedies for employees who are forced to sign unlawful non-compete or “stay-or-pay” agreements. These include, among other things, the difference in pay between what an employee earned at the employer and what they would have earned elsewhere, lost wages if an employee was out of work for longer than they otherwise would have been, or compensation for any costs the employee incurred in complying with an unlawful agreement, such as relocation or job training expenses.  

Note that the GC’s memoranda do not apply to employees that are not covered under the NLRA, such as supervisory and managerial employees.

For further information, please contact:

Nick Zaino
Partner
203.578.4270
nzaino@carmodylaw.com

This information is for educational purposes only, to provide general information and a general understanding of the law. It does not constitute legal advice and does not establish any attorney-client relationship.