NLRB GC to Seek Broad Remedies for Non-Compete and Stay-or-Pay Provisions – Part I

By Chad M. Horton - Shawe Rosenthal LLP

October 14, 2024

National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo issued an important policy memorandum this week. In GC Memorandum 25-01, Abruzzo asserts that most “stay-or-pay” provisions, where workers agree to repay their employer for certain benefits if the employee prematurely leaves employment, should be found unlawful unless narrowly tailored. The memo also sets forth broad remedies GC Abruzzo intends to seek if such provisions are held unlawful. In addition, following up on her memo that most non-compete agreements are unlawful, GC Abruzzo laid out the remedies she will seek from the Board where it holds that an employer has unlawfully enforced or applied a non-compete agreement.

This special two-part blog will cover both subjects. In this edition, we will cover the remedies proposed by the GC for employees subject to non-compete provisions found unlawful by the Board. Part II of this blog will address stay-or-pay provisions, the GC’s legal position that such provisions are presumptively unlawful, and the remedies she will seek for employees subject to stay-or-pay provisions.

Before we proceed, employers should keep in mind the following caveats. This memorandum does not carry with it the force of law or otherwise change Board law. Rather, it merely sets forth the GC’s legal position. But, employers can expect the GC to advance her legal position against employers who proffer and maintain non-compete and stay-or-pay provisions that the Board may ultimately find unlawful. Additionally, there is a rather significant election next month, the result of which will dictate whether GC Abruzzo will have sufficient time to effectuate her legal position – if Donald Trump is elected, GC Abruzzo will almost certainly be terminated, absent resignation, upon his inauguration. Last, the positions set forth in this memo are not applicable to supervisors, whether or not they are subject to non-compete and/or stay-or-pay provisions.

Remedies for Unlawful Non-Compete Agreements

GC Abruzzo contends that non-compete provisions are often “self-enforcing,” causing employees to forego better opportunities or leverage outside options to obtain better working conditions in their current job due to fear of violating the non-compete. Additionally, the GC believes that non-compete provisions create additional financial harms to employees during the post-employment period that warrant make-whole relief.

GC Abruzzo asserted that she will seek the below remedies irrespective of whether the employee remains employed with the employer, was subject to an action taken to enforce the non-compete, resigned from employment, or was terminated for cause. Put simply, if an employee was subject to a non-compete found unlawful by the Board, GC Abruzzo will seek the following remedies:

   • Loss of Prospective Higher Wages

Employees subject to non-compete provisions may obtain the difference in their current salary or wage rate and what they would have earned in a higher-paying position they claim to have passed upon due to the non-compete. If the employee demonstrates that (1) there was a vacancy available for a job with better compensation, (2) they were qualified for the position, and (3) they were discouraged from applying for or accepting the job because of the unlawful non-compete provision, the GC will seek the difference in the respective salaries for the entire remedial period. (Note: The remedial period would begin six months prior to the filing of the underlying unfair labor practice charge. In cases that span years before the NLRB, this remedial period could be lengthy, resulting in substantial employer liability.)

It appears that an employee’s word that they were “discouraged from applying for” a higher-paying job for which they were qualified would suffice for the employee to be eligible for this remedy. Moreover, the memo does not address how the GC would address a scenario where several employees of the same employer may have been discouraged from applying for the same higher-paying position. Thus, it is unclear whether the GC would assert each employee was eligible for the entire difference in the respective salaries, or if the difference would have to be split among eligible employees if, for instance, there was only one available position.

   • Lost Salary as a Result of Extended Time Out of Work

GC Abruzzo contends that employees who can prove that “they were out of work for a longer period than they otherwise would have been,” should be awarded lost wages. Such employees would have to satisfy the above test and establish that there was a vacancy for which they were qualified, but did not pursue or accept due to an effective non-compete provision.

This remedy could result in even greater employer liability. In cases where employees remain employed with the employer subjecting them to a non-compete, employees would be entitled to only the difference in wages between their existing job and the prospective job. Here, however, an out-of-work employee has no such current income. Consequently, back pay liability could quickly add up for an employee who, say, claims that while out of work they did not apply for a $100,000/year job due to a non-compete with their former employer.

   • Compensation for Lower-Paying Job in Different Field

Similarly, the GC will seek compensation for employees who take lower-paying jobs in a different industry within the geographic scope of the non-compete. In such cases, the GC will pursue the difference between what the individual would have received in a job they passed upon in their industry and what they are earning in the new job, for the duration that the non-compete is effective.

   • Moving Costs

The GC will also seek costs associated with an individual’s relocation to an area outside the geographic scope of the non-compete. Where an employee felt compelled to move outside of the geographic region to obtain employment within their industry, the GC will ask the Board that the employee be compensated for moving-related costs.

   • Retraining Costs

Some employees subject to a non-compete may decide to work in a different field for which they are not yet qualified. Where an employee subject to a non-compete must complete training or obtain certification or licensure in a different industry, the GC will ask the Board to award such costs to the employees.

   • Costs for Enforcement Actions

Employers sometimes seek to enforce non-compete provisions against former employees believed to have violated such agreements (e.g., a breach-of-contract claim). If an employer seeks enforcement of a non-compete provision found unlawful by the Board, the GC will seek reimbursement for legal fees and costs associated with defending such actions, as well as retraction of the underlying legal action.

To ensure that all employees subject to non-competes are notified of these proposed remedies, the GC will ask the Board to make changes to its standard Notice to Employees. GC Abruzzo will propose notice language alerting employees that they may be entitled to compensation if they were discouraged from pursuing or unable to accept other opportunities due to a non-compete provision. In addition, GC Abruzzo will seek language notifying employees that they may be entitled to other compensation if they separated from employee and had difficulty securing comparable employment due to the non-compete provision. Last, GC Abruzzo will ask the Board for notice language soliciting individuals to contact their Regional office if they have evidence of harm caused by a non-compete provision. To ensure that even former employees know these rights, the GC will ask the Board to require that the notice be mailed to all current and former employees who have worked for the employer up to six months prior to the filing of the underlying charge.

Conclusion

Employers should expect GC Abruzzo to target non-compete provisions for the remainder of her term as GC. Whether the duration of that term is three months or much longer will be dictated by the results of this November’s election. But employers would be wise to review their non-compete provisions to ensure that they avoid scrutiny from the NLRB. As described in this memo, employer liability could be substantial if the Board finds a provision to violate the NLRA.

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