NLRB General Counsel Takes Aim at Noncompetes and ‘Stay-or-Pay’ Provisions

The National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo issued a memo to board regional directors doubling down on her position that overbroad noncompete agreements are unlawful and asserting that certain “stay-or-pay” provisions violate employees’ rights under the National Labor Relations Act (NLRA).

We’ve gathered articles on the news from SHRM and other outlets.

General Counsel’s Reasoning

Under stay-or-pay provisions, an employee must pay their employer if they separate from work, Abruzzo explained. Such provisions “infringe on employees’ Section 7 rights in many of the same ways that noncompete agreements do,” she wrote.

Section 7 of the NLRA guarantees employees “the right 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,” as well as the right “to refrain from any or all such activities.”

Abruzzo stated in her memo that noncompete provisions “can restrict the ability to change jobs or leverage one’s outside options to obtain a raise, which are common ways employees improve their income and employment terms. In other words, unlawful noncompete provisions may have a harmful financial impact on employee wages and benefits by explicitly restricting employees’ job opportunities.”

As for stay-or-pay provisions, Abruzzo wrote that they—like noncompetes—“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. Accordingly, I believe that such provisions violate Section 8(a)(1) of the act unless they are narrowly tailored to minimize any interference with Section 7 rights.” Section 8(a)(1) of the act makes it an unfair labor practice for an employer to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7 of the act.

(NLRB news and NLRB)

Ongoing Litigation

The NLRB is considering whether noncompete agreements violate workers’ rights under the NLRA in a case involving an Indiana HVAC company, after Abruzzo first argued that such agreements were illegal in a 2023 memo.

About 20% of U.S. workers, or 30 million people, have signed noncompetes, and the Federal Trade Commission (FTC) in April banned most noncompete agreements. A Texas federal judge in August blocked the ban from going into effect, and the FTC is appealing.

(Reuters)

SHRM Opposed FTC’s Ban on Noncompetes

SHRM agreed with the August decision blocking the ban on noncompetes.

“SHRM has been clear on this issue from the beginning, advocating for balanced business practices that protect both workers and employers,” said Emily M. Dickens, J.D., chief of staff, head of government affairs, and corporate secretary at SHRM. “The court’s decision affirms our position—like SHRM, the judge recognized that the FTC’s sweeping ban failed to explore less restrictive alternatives and ignored the positive impact noncompete agreements can have when applied appropriately. This ruling delivers much-needed clarity for businesses and workers alike, as the court found the rule to be unlawful and rightly blocked it from taking effect on Sept. 4.”

(SHRM)

Some States Ban Noncompetes

Some states have banned or restricted the use of noncompetes. At least four states—California, Minnesota, North Dakota, and Oklahoma—have banned noncompete agreements, and many other states have enacted restrictions, such as setting a compensation threshold or requiring advance notice.

(SHRM)