NLRB Says Certain "Stay-or-Pay" Provisions in Employment Contracts Interfere with Employees' Section 7 Rights

Following NLRB General Counsel Jennifer Abruzzo’s May 2023 guidance on non-compete provisions that the agency deems to violate the National Labor Relations Act, the NLRB has now turned its attention to “stay-or-pay” provisions that may run afoul of the Act.

A “stay-or-pay” provision is created when an employer requires an employee to pay a monetary reimbursement or penalty if their employment is terminated before a certain amount of time is up. These can take many forms in employment agreements, including repayment for expenses such as: training, licensing or education expenses, sign-on bonuses, relocation stipends, or even charging a general “quit fee” for termination of employment before the timeframe expires. These provisions are increasingly present in various industries and some do not differentiate between voluntary or involuntary termination.

The NLRB’s position on “stay-or-pay” clauses is that they are presumptively unlawful. However, employers can overcome that presumption if they show that the provision advances a legitimate business interest and is narrowly tailored to minimize interference with employees’ Section 7 rights to self-organization, union membership, and collective bargaining. Specifically, employers must prove that the provision 1) is voluntary and entered into in exchange for a benefit to the employee, 2) specifies a reasonable payment amount, 3) has a reasonable timeframe the employee is required to “stay,” and 4) does not require an employee who is terminated without cause to pay.

Voluntary and in Exchange for a Benefit

The GC’s new guidance specifies that employees must be able to “freely choose” whether to enter the agreement and not face undue financial penalties or adverse consequences from their employer if they elect not to enter into it. Training repayment agreements are one example of this. Requiring employees to reimburse their employer for optional training is permitted under the NLRA. However, requiring repayment for mandatory training is considered a violation. This is because optional agreements and repayment for optional training allow employees to freely choose whether they will enter into this agreement and their employment is not conditioned on the provision. Under a mandatory agreement, employees are considered more likely to be “chilled” from engaging in protected conduct under Section 7 due to fear of financial penalties in addition to adverse employment actions or retaliation.  

Licensing and educational requirements are also examples of an exchange for a benefit. Requiring an employee to repay any employer expenses for obtaining or maintaining a license or credential required to do the employee’s job is permitted because 1) the employee could optionally pay the expenses out of pocket, and 2) the license or credential is a benefit to the employee that they can use outside of their current job. However, the NLRB does specify that the employee must have discretion in the third-party vendor they take the classes from and they may not be required to take classes from the employer. Educational programs also usually have alternative financing options besides receiving funding from your employer, so this is considered sufficient employee discretion under the NLRA.

Specifies a Reasonable Payment Amount

A payment amount would be considered “reasonable” if it is equal to or less than the cost the employer shouldered to benefit the employee. When the cost is more than what the employer paid for the benefit, the provision no longer furthers a legitimate business interest and is deemed unlawfully restrictive and coercive. In addition, the reasonable payment amount must be stated up front in the contract and disclosed to the employee before accepting the benefit. That way, the employee can make an informed decision about entering the agreement and have full transparency about what would be required of her, should she leave early.

Reasonable “Stay” Timeframe

The NLRB does not specify an exact amount of time that would be considered “reasonable”, stating that a reasonable amount of time will be determined on a case-by-case basis. The factors considered include but are not limited to: the cost of the employee benefit, value to the employee, and the employee’s compensation. For example, if the cost of the benefit is higher, the timeframe can be longer and vice versa. Another consideration is whether the required repayment amount decreases, the longer the employee has been on the job.

Exempted from Payment if Terminated Without Cause

If the contract states the employee is required to pay a certain amount if their employment is terminated for any reason, then it is considered unduly coercive and a violation of the NLRA. A “stay-or-pay” provision must state that the employee will not be indebted to their employer if they are terminated without cause. “Without cause” in this context includes termination for reasons already prohibited by the NLRA. The rationale behind this is knowing that they will face financial penalties if they are fired for any reason will especially discourage employees from engaging in protected conduct under Section 7.

Takeaways

• In the agency’s view, the key word for “stay-or-pay” provisions is “optional.” Employees must be given discretion about entering the agreement in the first place where they receive their education and training from, and whether to take the funding for the benefit or pay out-of-pocket. If the training is mandatory and the benefits are not transferrable to another position, then employees should not be required to repay the employer.
• Employees need to not only have options, but the ability to make an informed decision. An employee subject to a “stay-or-pay” provision should be made aware of the specific reasonable repayment amount and the required reasonable timeframe up front in the contract.
• These provisions also should clearly state that employees that are terminated without cause are exempt from a repayment requirement to avoid any unlawful coercion.