NLRB GC Memo Calls For Aggressive Retroactive Make-Whole Remedies Against Employers 

Topics: Court Decisions, Non-Compete and Trade Secrets

Last year, National Labor Relations Board (“NLRB” or “Board”) General Counsel, Jennifer Abruzzo, issued GC Memorandum 23-08 opining that, with some exceptions, the maintenance and enforcement of non-compete agreements violates the National Labor Relations Act (“NLRA” or “Act”). Then last week, she doubled down and issued a new memorandum, GC Memorandum 25-01, encouraging the Board to (i) impose wide-ranging make-whole remedies in the face of non-compete agreements that violate the NLRA, (ii) extend her non-compete rationale to recognize a rebuttable presumption of unlawfulness with respect to so-called “stay-or-pay” agreements (under which an employee agrees to disgorge/recover the cost of a benefit—like a training cost—if they separate from employment before an agreed upon date), and (iii) impose wide-ranging make-whole remedies in the face of stay-or-pay agreements that violate the Act.

Specifically, the General Counsel describes the harms that flow from non-competes as being uniquely “pernicious” and thus encourages the Board to broaden its remedial efforts and order employers to—

• compensate current employees for the difference in lost compensation where the employee can show they were deprived of a better job opportunity because of a non-compete (simply by showing a preferable vacancy, qualification, and that the non-compete acted as discouragement from applying);
• compensate former employees for periods of unemployment where the employee can show they were unemployed for longer than they otherwise would have been as a result of the non-compete;
• compensate former employees for the different experience in accepting a job of lesser compensation in compliance with the non-compete compared to a better-paying job they were dissuaded from taking due to the non-compete; and 
• compensate former employees for moving-related and retraining-related expenses incurred obtaining employment consistent with the terms of a non-compete provision.

Scarier still, the memo suggests that “any uncertainty” as to the evidentiary sufficiency supporting a claim for the foregoing remedies should be “resolved in favor of the employee.”

Next, GC Memorandum 25-01 takes aims at stay-or-pay agreements that seek to recoup front-end expenses from early-departing employees, and ultimately describes them as “presumptively unlawful.” The memo advocates that employers may only be permitted to rebut the presumption of unlawfulness by proving both that the stay-or-play provision advances a legitimate business interest (e.g., to recover expenditures when the employee leaves before the employer can reap the anticipated benefit of the expenditure) and that the provision is “narrowly tailored,” which means (i) voluntarily entered into (i.e., optional) in exchange for a benefit, (ii) stating a reasonable and specific repayment amount, (iii) with a reasonable stay period, and (iv) a carve-out for no repayment in the event of involuntary termination.

As with non-competes, GC Memorandum 25-01 similarly advises that the “maintenance of non-voluntary stay-or-pay arrangements” violates the NLRA and “requires a more robust remedy….” For example, “when an employer attempts to collect the purported debt,” in addition to nullifying the debt, “the employer must compensate the employee for any legal fees or any other expenses associated with defending against the employer’s action.”

Further, just like with non-competes, where employees might miss out on more lucrative job prospects because of their existing agreements, “employees must have the opportunity to come forward and demonstrate that they were deprived of better employment opportunities” by their stay-or-pay agreements. Said differently, Abruzzo’s Memorandum encourages the Board to impose the same aggressive, wide-ranging make-whole remedies against employers with stay-or-pay agreements as with non-compete agreements.  

While the Memorandum does suggest granting employers a sixty-day window to cure preexisting stay-or-pay provisions consistent with the parameters outlined in the document (i.e., until December 6, 2024), the office of the General Counsel concludes with an unambiguous warning to employers, “I intend to prosecute preexisting stay-or-pay arrangements that fail the test set forth herein and seek retroactive application, absent extenuating circumstances.”  

Employers with non-compete or stay-or-pay agreements in circulation would thus be well-advised to have their labor counsel review such agreements with an eye toward last week’s memo without delay. The author of this article, John Giovannone, and other attorneys at CDF are well equipped to provide advice in this area.