If nothing else, you have to give the National Labor Relations Board (“NLRB”) General Counsel Jennifer Abruzzo (the “GC”) an “A” for effort in her attempt to do what her friends at the Federal Trade Commission (“FTC”) have been unable to yet do: eviscerate the use of post-employment restriction in the U.S.  While the FTC’s rule on employers’ use of non-competes has been (rightfully) tied up in the courts, the NLRB has moved full steam ahead with its plan to slow the use of non-competition provisions for non-supervisory employees in the private workplace throughout the U.S.

In her latest GC Memorandum, the GC announced her updated position regarding the non-compete initiative that she initially rolled out in May 2023.  In her original Memo, the GC announced her position that except in very limited circumstances, the proffer, maintenance, or enforcement of a post-employment non-compete restriction against a non-supervisory employee violates Section 8(a)(1) of the NLRA. As the GC explained at the time, she believes that non-compete provisions are overbroad because they “reasonably tend to chill employees in the exercise of Section 7 rights, when the provisions could reasonably be construed by employees to deny them the ability to quit or change jobs by cutting off their access to other employment opportunities that they are qualified for based on their experience, aptitudes, and preferences as to type and location of work.”

Consistent with this position, the GC has since pursued unfair labor practice cases involving an employer’s use or enforcement of a non-compete provision.  In one recent decision in June 2024, a NLRB Administrative Law Judge found that an employer’s non-competition and solicitation provisions violated Section 8(a)(1) of the NLRA because they “would cause a reasonable employee to refrain from engaging in protected activities because if an employee knows they are barred from being involved with a company that operates a similar business to the employer, they will be more fearful of being fired and less willing to rock the boat, as they face the prospect of being unable to find any work in their geographic area if they are fired or forced to leave their job.” J.O. Mory, Inc., JD-36-24 (June 13, 2024).  After finding the post-employment restrictions unlawful, the ALJ ordered the employer to take the following action with respect to the employee who had filed the unfair labor practice complaint:

• To cease and desist from unlawful activity;
• To offer reinstatement to the unlawfully terminated employee; and
• To make the employee whole for any loss of earnings and financial harm he suffered.

The ALJ further ordered the employer to take a wide range of action to remedy the use of the non-compete relating to other employees:  rescind the unlawful provisions, post a notice to employees at its two locations that were subject to the provisions, and mail a copy of the notice to all current and former employees employed since August 3, 2022.  The case is currently on exceptions (or an appeal) to the NLRB.

NLRB GC Announces the Next Phase on Her Assault on Post-Employment Restrictions.

In her most recent Memorandum, dated October 7, 2024, the GC announces the new phase of her initiative relating to post-employment restrictions. First, the GC focuses on the remedies awarded in unfair labor practice cases involving non-competition provisions.  The GC urges the Board to issue the fullest remedy possible to “to remedy the harmful effects on employees when employers use and apply them,” including “make-whole” relief.  According to the GC, the Region should seek all the following “make-whole” relief in cases involving non-competition provisions:

• Employees should be permitted to come forward during the notice-posting period and demonstrate that they were deprived of a better job opportunity as a result of the non-compete provision. In particular, an employee must demonstrate that: (1) there was a vacancy available for a job with a better compensation package; (2) they were qualified for the job; and (3) they were discouraged from applying for or accepting the job because of the non-compete provision.
• Individuals who separated from the employer during the statute of limitations period may also be entitled to make-whole relief for additional harms or costs associated with complying with the unlawful non-compete provision during the post-employment period, until those restrictions expired. For example, a former employee may be able to demonstrate that they were out of work for a longer period than they would otherwise have been as a result of the non-compete, thereby entitling them to payment for those lost wages.

To help effectuate these remedies, the GC recommends the NLRB amend its standard notice posting to solicit relevant information from employees.  This would include alerting employees that they may be entitled to the differential in wage if they were discouraged from pursuing other opportunities because of the non-compete or compensation if they separated from the employer and had trouble “securing comparable employment due to the non-compete provision, such as by being unemployed longer, accepting a job with a lower compensation package, moving outside the provision’s geographic scope, or incurring retraining costs to become qualified for jobs in a different industry.” In short, under the GC’s initiative, the financial cost to an employer of maintaining an unlawful non-competition provision may be significant.

But Wait, There’s More… NLRB GC Expands Her Initiative to Include Employer “Stay-or-Pay” Provisions.

The GC also spent a significant amount of the Memorandum addressing her position regarding employer “stay-or-pay” provision. These types of provisions come in various forms, including training repayment agreement provisions (or TRAPs), educational repayment contracts, quit fees, damages clauses, sign-on bonuses or other types of cash payments tied to a mandatory stay period, and other contracts under which employees must pay their employer in the event that they voluntarily or involuntarily separate from employment.  Like non-compete provisions, the GC believes that “stay-or-pay” provision 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.”  Specifically, the GC, without citing any actual support, held:

Stay-or-pay provisions tend to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7 of the Act. Typically, as experience has shown, employees are economically dependent on their employers to sustain their income and benefits and do not wish to jeopardize their jobs.

As a result, the GC concluded: “Employers do not have a legitimate business interest in forcing employees to remain employed in a given workplace against their will through the use of coercive contractual arrangements.”

With the Memorandum, the GC urged the NLRB to find that “any provision under which an employee must pay their employer if they separate from employment, whether voluntarily or involuntarily, within a certain timeframe is presumptively unlawful.” In order to rebut this presumption, the employer must prove that the stay-or-pay provision advances a legitimate business interest and is narrowly tailored to minimize any infringement on Section 7 rights, that is, the 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 GC noted that she will grant employers a 60-day window from the date of the Memorandum, until December 6, 2024, to revise any preexisting stay-or-pay provisions to conform with the requirements set forth above before beginning enforcement efforts.

Takeaways: Employers Should Immediately Review Their Employee Agreements, Policies and Handbooks to Avoid the Pain of the NLRB.

The relief employers found following the decision to stay the FTC’s non-compete rule has quickly vanished.  The NLRB GC has reiterated that she means business and will take action against employers who subject their non-supervisory employees to overly broad non-competition provisions, and now stay-or-pay provisions.  Therefore, employers should take immediate steps to review their policies, handbooks, and employment agreements, to make sure that they are not subjecting their non-supervisory employees to potentially unlawful non-compete provisions.

The GC’s new initiative presents a significant risk to employers.  As the GC notes in the Memorandum, she will urge Regions to seek broad make-whole remedies for all employees subjected to the unlawful non-compete or stay-or-pay provision.  Moreover, for those employers who are vulnerable to union organizing (such as nearly all cannabis employers), an unlawful non-compete provision could be the difference between having a union and not having a union.