NLRB General Counsel Targets “Stay-or-Pay” Provisions in Employment Agreements

This is an article from The National Law Review: https://ow.ly/JeCo50TS5qq On October 7, 2024, the General Counsel (GC) of the National Labor Relations Board (NLRB) released a detailed 17-page memorandum urging the Board to declare so-called “stay-or-pay” provisions unlawful and to impose stiff penalties on employers that use them. Just days later, on October 15, the U.S. Department of Labor (DOL) followed suit, signaling an increased federal focus on curbing what it calls “coercive” employment practices.

If your organization uses employment agreements that include repayment obligations—like training reimbursement or relocation cost clauses—you’ll want to pay close attention.

What Is a “Stay-or-Pay” Provision?

“Stay-or-pay” provisions are clauses in employment contracts requiring employees to repay certain employer-incurred expenses—such as training costs, signing bonuses, tuition, or relocation expenses—if they leave the company within a specified period.

Often referred to as Training Repayment Agreement Provisions (TRAPs), these clauses are designed to protect employers’ investments in new hires. However, the NLRB’s General Counsel now views them as functionally similar to non-compete agreements, potentially violating employees' rights under the National Labor Relations Act (NLRA).

Why the Pushback?

The GC argues that stay-or-pay provisions discourage employees from changing jobs, thereby interfering with their Section 7 rights under the NLRA. These rights include the freedom to organize, engage in collective bargaining, and act together to improve working conditions—regardless of whether a workforce is unionized.

Although the memo does not create new law, it provides a roadmap for future enforcement and has already sparked public and legal debate. If the NLRB adopts the GC’s position, employers could face significant financial consequences, including mandatory reimbursements to affected employees.

Does This Affect Non-Union Employers?

Yes. The NLRA applies broadly to most private-sector employees, whether or not they are in a union. If your workforce includes rank-and-file employees (not supervisors or independent contractors), your company could be subject to enforcement.

Could the GC’s Memo Be Applied Retroactively?

Potentially. If the NLRB adopts the GC’s view, the new standard would likely apply to both future and existing agreements. However, the GC has offered a 60-day “cure period” (ending December 6, 2024) for employers to review and revise current stay-or-pay clauses to avoid prosecution.

What Would Compliance Look Like?

According to the GC, reasonable stay-or-pay provisions should:

• Be voluntarily entered into by the employee in exchange for a specific benefit

• Include a clearly defined and reasonable repayment amount

• Cover a reasonable time period

• Exclude repayment if the employee is terminated without cause

If your current agreements don’t meet these criteria, you may need to revise or eliminate them—or risk enforcement action.

What Are the Alternatives?

As scrutiny increases, some employers are considering alternative retention tools, such as:

• Stay bonuses (i.e., awarding a bonus only if the employee remains for a defined period)

• Retention agreements structured with performance milestones rather than exit penalties

These alternatives can be more palatable from a legal perspective, though they may complicate non-compete or non-solicitation clauses, especially in states requiring up-front consideration for enforceability.

What Should Employers Do Now?

1. Review all employment agreements for stay-or-pay provisions—especially TRAPs, relocation clauses, and bonus clawbacks.

2. Consult legal counsel to evaluate whether your provisions could be challenged under the GC’s framework.

3. Consider revisions or alternatives that better align with the GC’s guidelines.

4. Document decisions if you opt for a wait-and-see approach—particularly as the NLRB’s direction may shift depending on the outcome of the November 2024 election.

   
   

Final Thoughts

While the NLRB General Counsel’s memorandum is not yet binding law, it sends a strong signal about where enforcement efforts may be headed. Employers that rely on stay-or-pay provisions should treat this development seriously, evaluate their risk, and prepare for a potential policy shift—sooner rather than later.