Should I Stay or Should I Go? NLRB General Counsel Takes Aim at “Stay-or-Pay” Provisions

Stay-or-pay provisions are arrangements “under which employees must pay their employer in the event that they voluntarily or involuntarily separate from employment.” Commonly used stay-or-pay provisions include (1) training repayment agreements, (2) education repayment contracts, and (3) sign-on bonuses, retention bonuses, relocation payments, or other types of cash payments that require repayment by the employee absent remaining employed for a specified period.

In her memorandum, the General Counsel noted that, like non-compete agreements, stay-or-pay provisions can make resigning from employment financially difficult or untenable for employees and increase employee fear of termination (due to the financial burden of repayment) for engaging in NLRA-protected activity.  Accordingly, she concluded that the restriction on employee mobility implicated by stay-or-pay provisions has a tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights “to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

However, the General Counsel determined that not all stay-or-pay arrangements are unlawful. The memorandum explained that, while provisions that have the sole purpose of forcing employees to remain employed — such as quit fees or damages clauses — are unlawful, stay-or-pay provisions intended to recoup benefits provided to employees are only presumptively unlawful.  Employers may rebut that presumption and maintain permissible stay-or-pay provisions if the arrangement is for a legitimate business purpose and narrowly tailored to minimize infringement on Section 7 rights.

The General Counsel outlined that, in order to be lawful, a stay-or-pay provision must meet all of the following requirements:

1. Be Voluntarily Entered Into by the Employee in Exchange For A Benefit: The agreement must be optional and allow employees to decide whether to take on its obligations in exchange for a benefit. Accordingly, stay-or-pay provisions cannot apply to mandatory trainings or other conditions of employment.¹ With respect to relocation or sign-on bonuses, the memorandum provides that stay-or-pay provisions are voluntarily entered into only if the employee is given the option of either taking an up-front payment subject to the stay-or-pay provision or deferring payment until the end of the stay period.²
2. Be For A Reasonable And Specific Repayment Amount: Employers cannot require employees to repay more than the cost of the benefit, and such amount must be specified before the employee accepts the benefit to obtain informed consent.
3. Set Forth A Reasonable “Stay” Period: Reasonability for the duration of the stay period is a fact-specific analysis based on factors such as: cost of the benefit, value of the benefit to the employee, whether the repayment amount decreases over the duration of the stay period, and the employee’s income. In short, stay periods must be proportional to the cost of the benefit.
4. Not Require Repayment If The Employee Is Terminated Without Cause: An employer cannot require an employee to repay the benefit if they are terminated by the employer without cause prior to the end of the stay period, and the provision must expressly state such.

The General Counsel argues for retroactive application of the above requirements to pre-existing stay-or-pay provisions with employees who are covered by the NLRA.  To avoid prosecution, the General Counsel instructed employers to cure — by December 6, 2024 — any pre-existing stay-or-pay provisions. Agreements with employees who meet the NLRA definition of “supervisor” are not impacted by the memorandum.

For voluntary stay-or-pay provisions obtained with informed consent, employers can cure any defective aspects of the arrangement by revising the provision to conform to the above requirements. However, if the provision was mandatory or entered into by the employee without informed consent, the General Counsel instructs employers to notify employees that the provision has been rescinded and the debt nullified.

In the event an employer has attempted to enforce an unlawful stay-or-pay provision,³ the General Counsel suggests requiring employers to retract such enforcement actions and “make employees whole for any financial harm resulting from its attempted enforcement.”⁴ Make-whole payments may include, but are not limited to, reimbursement of the repayment, legal or other fees associated with defending the enforcement, pecuniary harms and potential compensation lost due to the provision depriving the employee of better employment opportunities. The make-whole concept may also require employers to take steps to correct non-monetary damage caused by such enforcement, such as repairing damage to an employee’s credit score.

What does this memorandum mean for employers who use stay-or-pay provisions? The General Counsel’s memorandum does not immediately make all non-conforming stay-or-pay provisions unlawful; rather, it sets forth the General Counsel’s position regarding application of the NLRA to such provisions and her intent to prosecute claims as outlined. NLRB Regional Directors may submit cases based on this guidance for review by administrative law judges (“ALJ”).  Such ALJ rulings are subject to appeal to the NLRB, whose decisions, in turn, are subject to review by U.S. federal courts.

For now, employers who use stay-or-pay agreements with non-supervisory employees should review existing agreements to determine whether any amendments are necessary and should carefully review the requirements as outlined in the memorandum to ensure any stay-or-pay agreements offered to non-supervisory employees going forward are compliant.

¹ The memorandum further discusses the voluntariness of stay-or-pay provisions when training, classes or instruction are required to maintain mandatory credentials.

² We note that this requirement could have potential tax consequences in the event such payment timing election period spans two calendar years.  Vinson & Elkins’ executive compensation and benefits team-members are available to assist with such tax considerations.

³ The General Counsel intends to exercise her discretion to decline to prosecute certain enforcement actions involving upfront cash payments, optional training, and classes required to obtain a credential as long as the provision was — or following cure is — reasonable in its stay period, repayment amount and repayment trigger.

⁴ The General Counsel introduces the make-whole concept at the start of the memorandum when she urged the NLRB to remedy the harm caused by unlawful non-compete provisions.