by On October 7, 2024, the General Counsel for the National Labor Relations Board (NLRB) issued a guidance memorandum, Memorandum GC 25-01, to Regional Directors and other staff outlining a previously unidentified labor law violation regarding employer policies and agreements. The guidance asserts that an employer presumptively violates federal labor law when it requires an employee to pay the employer upon leaving the job before an agreed upon time. The formal guidance directs enforcement staff to assess the lawfulness of such arrangements in the future. The guidance was part of a memorandum that also expanded on previous challenges to noncompete agreements.
The memorandum lists several common employer requirements involving reimbursement or payments from employee to employer that should be assessed as potential NLRA violations. These include common provisions for payment such as training repayment agreements (also known as TRAPS), educational repayment agreements, quit fees, damages clauses, sign-on bonus repayment, and other types of cash payments tied to a mandatory stay period.
The memo proposes a framework for assessing the lawfulness of such provisions, the remedies to be requested if there are violations, and the circumstances under which the General Counsel will decline to issue complaints against preexisting stay-or-pay arrangements.
The framework calls for a presumptive finding of unlawful labor practice for any provision under which an employee must pay their employer if they separate from employment, whether voluntarily or involuntarily, within a specific timeframe. The employer may rebut that presumption by proving that the stay-or-pay provision advances a legitimate business interest and that the provision is narrowly tailored to minimize any infringement on employee rights.
The elements that are to be assessed when considering whether an employer overcomes the presumption include that the challenged provision:
(1) is 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.
The memorandum details how each of these elements should be evaluated.
The impact of Memorandum GC 25-01 on employer practices is affected by the context of the guidance. General Counsel guidance memoranda do not bind the NLRB’s actions. The NLRB does not always follow the advice of the General Counsel. Further, even if the approach is adopted by the Board, it would not affect all ‘stay or pay’ agreements. Agreements regarding ‘stay or pay’ with employees who are not subject to terms of Section 7 of the NLRA are not covered under the guidance. Supervisors are an example of employees that are generally excluded from coverage.
The guidance memorandum is a useful resource for employers, even though it is not a court or even Board interpretation of the NLRA. Like earlier memoranda about the legality of noncompete agreements, this guidance spells out the prosecutorial approach that the General Counsel intends to follow in applying the terms of the NLRA to employer actions. Beyond guidance to the NLRB enforcement team and advice to the NLRB, General Counsel memoranda alert employers to what employer actions may be scrutinized more closely in the future. The information on “stay or pay” provisions in Memorandum GC 25-01, coupled with its new information on remedies that will be sought for allegedly unlawful use of noncompete agreements, makes the memorandum worth reviewing as part of an employer’s risk assessment of employee policies and agreements. Memorandum GC 25-01: Remedying the Harmful Effects of Noncompete and “Stay-or-Pay” Provisions that Violated the National Labor Relations Act can be found at https://www.nlrb.gov/guidance/memos-research/general-counsel-memos.
