Many employers use “stay or pay” agreements to seek reimbursement of certain costs advanced on behalf of the employee if the employee leaves their employment within a specified time period. Signing bonuses, training payments, relocation stipends and other cash payments are provided to employees on the condition that the employee repay all, or a portion, of these payments in the event the employee leaves the company’s employ within a set time.
On October 7, 2024, Jennifer Abruzzo, General Counsel of the National Labor Relations Board (NLRB), issued a Memorandum to all regional directors, discussing “stay or pay” agreements, including Training Repayment Agreement Provisions (TRAPs). Ms. Abruzzo discussed her view that “stay or pay” provisions can interfere with, restrain or coerce employees in the exercise of the rights guaranteed in Section 7 of the National Labor Relations Act (the “Act”). She argued that employees subject to a “stay or pay” provision are discouraged from engaging in protected activity to change their working conditions in their current job, whether by organizing a union, collectively advocating for such changes, or concertedly threatening to quit if the changes are not forthcoming.
Ms. Abruzzo argued that like non-compete agreements, “stay-or-pay” provisions restrict employee mobility, making resigning from employment financially difficult, and increase an employee’s fear of termination for engaging in conduct protected by the Act.
Ms. Abruzzo will urge the NLRB to agree that any “stay or pay” provision under which an employee must pay their employer if they separate from employment, whether voluntarily or involuntarily, within a specified time period, is presumptively unlawful. She outlined criteria that employers must meet to rebut that presumption by proving that the “stay or pay” provision advances a legitimate business interest and is narrowly tailored to minimize any infringement of Section 7 rights.
Criteria for Rebutting the Presumption
To rebut the presumption, the employer must demonstrate that the provision:
- Voluntarily Entered Into in Exchange for a Benefit
To minimize infringement on employee rights, the “stay or pay” provision must be fully voluntary. Employees should be given the option to accept the payment on the condition that it may be repaid within a specified time period or decline that benefit. If the employee declines the benefit because they do not want the risk of having to repay the employer, they cannot suffer any financial loss or adverse employment consequences. Employees must have the right to freely choose whether they want to enter into these agreements or provisions. So, for example, in a TRAP, the training repayment agreement will satisfy this criteria as long as the training is optional. The employee’s job cannot be conditioned on accepting that training. Any mandatory training, such as orientation sessions, on-the-job training or other specific instruction that the employer requires an employee to attend, will not satisfy this criteria.
- A Reasonable and Specific Repayment Amount
In order for the repayment provision to be lawful, the repayment amount must be reasonable and specified. That means the repayment amount cannot exceed the cost to the employer of the benefit that was given to the employee. If the repayment amount is greater than the cost to the employer, the true purpose of this provision is not for recovery of an expense but rather, it is a coercive restriction on the employee’s ability to change jobs. To satisfy the specificity requirement, the amount must be disclosed before the employee accepts the benefit subject to the “stay or pay” provision.
- A Reasonable “Stay Period”
Whether a stay period is reasonable is going to be determined on a fact-specific basis. The factors to be considered include” the cost of the benefit given to the employee, its value to the employee, whether the repayment amount decreases over the course of the stay period, and the employee’s income.” If the cost of the benefit is significant, the stay period may be longer whereas lower cost benefits should be associated with shorter stay periods. In other words, the stay period should not be “unduly long and should be proportional to the benefit given to the employee.”
- No Repayment Required if Terminated Without Cause
The “stay or pay” provision must state that the debt will not come due if the employee is terminated without cause. Ms. Abruzzo believes that a “stay or pay” provision that permits the employer to recoup a debt if it terminates the employee for any reason whatsoever is unlawfully coercive. Termination for any reason would include a retaliatory discharge because an employee engaged in protected activity. She pointed out that by law, termination for engaging in activity protected by the Act is termination without cause and should not require repayment.
Remedies
Ms. Abruzzo outlined potential remedies for an allegedly unlawful “stay or pay” provision. She described a series of scenarios in which the basis for finding the “stay or pay” provision to be unlawful will affect the remedy. For example, if the “stay or pay” arrangement was voluntarily entered into but the provision is illegal because it is not otherwise narrowly tailored in one or more ways, the employer would be ordered only to rescind and replace the provision with a lawful one. In those circumstances when an employer has attempted to enforce an unlawful “stay or pay” agreement, the employer would be required to retract the enforcement action and make employees whole for any financial harms resulting from its attempted enforcement.
Ms. Abruzzo announced that she will grant employers a 60-day window from the date of issuance of the Memorandum to cure any preexisting “stay or pay” provisions that advance a legitimate business interest if the employer makes the necessary modifications in the provision to meet the criteria set forth by General Counsel Abruzzo. For example, the “stay or pay” provision should be modified to reduce the “stay or pay” period to a reasonable length, or language added to provide that the “stay or pay” provision does not cover no cause terminations. During this 60-day period, the employer must inform all employees who are subject to a “stay or pay” provision about these modifications.
Ms. Abruzzo stated that she would not pursue a complaint against a preexisting arrangement if the employer makes the appropriate modifications to the “stay or pay” provision during the 60-day window and notifies employees of these modifications. In addition, if, as a result of an unlawful “stay or pay” agreement, any employee was forced to repay an employer, or the employer commenced enforcement proceedings to collect the repayment, during this window, the employer must take the necessary steps to return any repayments collected from employees and make the employees whole.
Conclusion
It should be noted that this Memorandum signals to the public what arguments General Counsel Abruzzo will make to the NLRB once she finds a case where in her view, a “stay or pay” provision chills employees’ right to engage in protected activity. The NLRB may not agree with her theory. However, based on recent NLRB decisions which have largely upheld and approved of GC Abruzzo’s views and theories in other matters, it can be expected that the 5-person Board will adopt the position she describes in her October 7 Memorandum.
Employers that use “stay or pay” provisions should seek guidance from legal counsel. If you have any questions about the potential implications of the Memo or any other regulation on noncompete agreements, please contact Phyllis Karasov at pkarasov@larkinhoffman.com