Employment Law Update: The NLRB's General Counsel Targets "Stay or Pay" Provisions in Newly Issued Memo
Date: October 17, 2024
By:
Rafiq R. Gharbi
The Memo sets out a framework for evaluating the legality of various types of "stay or pay" provisions, such as training repayment agreements, educational repayment contracts, sign-on bonuses, and other contracts that impose a penalty on employees who leave their employer voluntarily or involuntarily before a mandatory stay period, after receiving the company-paid benefit. The Memo states that any "stay or pay" provision is presumed illegal, unless the employer can show that it serves a legitimate business interest and is narrowly tailored to avoid interfering with employees' rights under Section 7 of the National Labor Relations Act (NLRA), which protects their ability to join or form unions, bargain collectively, and engage in other concerted activities for their mutual aid or protection.
Some of the common “stay or pay” agreements provisions employers utilize include:
- Training repayment agreement provisions, under which an employee must repay the employer for the cost of training, or a prorated amount, if they separate from employment within a certain period of time.
- Educational repayment contracts, under which an employee must repay the employer for the cost of education, such as a degree, license, or certification, or a prorated amount, if they separate from employment within a certain period of time.
- Quit fees, damages clauses, or other contracts, under which an employee must pay the employer a penalty or a predetermined or unspecified amount of money for separation.
- Sign-on bonuses, relocation stipends, or other cash payments, under which an employee must repay the employer the amount of the payment, or a prorated amount, if they separate from employment within a certain period of time.
Employers may demonstrate that a stay-or-pay provision meets legitimate business interests if the provision is: (1) voluntarily entered into in exchange for a benefit; (2) has a reasonable and specific repayment amount; (3) has a reasonable "stay" period; and (4) does not require repayment if the employee is terminated without cause.
- Voluntary. Employees can freely choose whether to accept the provision and do not suffer any undue financial loss or adverse employment consequence if they decline, and that the provision is linked to a benefit conferred on the employee, such as optional training, educational assistance, or a cash payment.
- Reasonable Repayment Amount. The amount is no more than the cost to the employer of the benefit bestowed, and that the amount is disclosed to the employee before they assume the stay requirement.
- Reasonable Stay Period. The duration of the stay requirement is proportional to the cost and value of the benefit and takes into account factors such as the employee's income and whether the repayment amount decreases over time.
- No Repayment for Termination Without Cause. The debt will not come due if the employer fires the employee for any reason that is unrelated to the employee's performance or conduct, including for engaging in activity protected by the Act.
The Memo explains how employers can cure preexisting "stay or pay" arrangements to avoid potential prosecution and urges the NLRB to order remedies for employees who have been harmed by these provisions, such as reimbursement, rescission, or expungement.
The Memo builds on the General Counsel's previous memo from May 2023, which declared that overbroad noncompete, non-disparagement, and confidentiality agreements are also illegal because they chill employees from exercising their Section 7 rights.
Employers should review their "stay or pay" agreements, and other policies that may implicate the NLRA, to ensure that they comply with federal and state law, and that they do not unduly restrict their employees' rights or interests. The General Counsel has said a 60-day grace period to review and revise any such clauses before enforcement will commence. Whiteford's Labor and Employment Practice Group can help you navigate the complex and evolving landscape of the NLRB's enforcement actions and provide you with practical and effective advice.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.