NLRB finds “Stay or Pay” Provisions Unlawful

By Sonal Shah, JD, Assistant Director, Employment Law Services
Published November 5, 2024

As the National Labor Relations Board (NLRB) continues strongly advocating for employee rights, its General Counsel recently issued a memorandum finding that provisions requiring non-supervisory employees to stay with an employer for a specific period of time or repay certain costs (stay-or-pay provisions) may be unlawful. The memo defines stay-or-pay provisions as agreements under which employees must repay their employer for certain benefits or bonuses if they separate from employment before the end of a mandatory stay period. Examples of stay-or-pay provisions include tuition reimbursement agreements, training agreements, and signing or relocation bonuses which require employees to remain employed for a minimum period, and if they fail to do so, pay back the value of benefits received.

The General Counsel asserts that such provisions infringe on Section 7 rights under the National Labor Relations Act because they deter employees from seeking improved working conditions by imposing a financial penalty if they were to leave their job to take a better job elsewhere. She also claims that employees subject to such provisions are less likely to engage in union organizing or advocating for workplace rights because they are worried not only that they would be terminated, but also that they would owe their employer money for not remaining employed for the specified period.

However, the General Counsel stated that employers can rebut such a presumption if they can show the provisions are narrowly tailored to minimize interferences with Section 7 rights and advance a legitimate business interest. To do so, employers must demonstrate that the provisions:

Are voluntarily entered into in exchange for a benefit. “Employees must be permitted to freely choose whether to [agree to the provisions] and may not suffer an undue financial loss or adverse employment consequence if they decline.”

Have a reasonable and specific repayment amount. The repayment amount is “no more than the cost to the employer of the benefit bestowed, and the debt amount [is] specified up front.”

Have a reasonable stay period. A “fact-specific” inquiry “based on factors such as the cost of the benefit bestowed, its value to the employee, whether the repayment amount decreases over the course of the stay period, and the employee’s income.”

Do not require repayment if the employee is terminated without cause. “Must effectively state that the debt will not come due if the employee is terminated without cause.”

The General Counsel announced that she would grant employers 60 days from the date of issuance of the memorandum to cure any preexisting unlawful stay-or-pay provisions to avoid the issuance of a NLRB complaint. That sixty-day window ends on December 6, 2024. 

While the memo is not law because the General Counsel does not have such authority, it does demonstrate the NLRB’s position and the types of cases the agency will be pursing. While we wait for this guidance to be challenged and the courts to rule on the matter, employers will want to take note of the General Counsel’s position and determine how they want to respond. Employers with a low risk tolerance will want to ensure their policies and agreements are compliant with the NLRB’s guidance. 

As always, HR Source members with questions or who need assistance reviewing or revising their policies should contact us through the HR Hotline Online or at 800-448-4584.