NLRB Takes Aim At Employee Repayment Agreements

At Your Service
with Attorney Bob

Dear Attorney Bob,

Our hotel has a policy requiring employees to repay certain training costs and new hire bonuses if they leave the company within a set period. With recent updates from the National Labor Relations Board (NLRB), I’m concerned this could be considered a “Stay or Pay” clause that violates employment laws. Can you explain what’s going on with these types of agreements, and whether our policy is still lawful?
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Sincerely,
Nervous in Neenah

Dear Nervous in Neenah,

Federal agencies continue to target agreements that make employees think twice before switching employers. What was once a great employee-retention tool is quickly becoming a legal risk. The NLRB’s recent guidance regarding “Stay or Pay” provisions like training or hiring bonus repayment agreements, combined with growing scrutiny over non-compete clauses, marks a significant shift in the legal landscape. These changes are designed to protect employees’ rights under the National Labor Relations Act (NLRA) [1], so let’s dig into what you need to know to ensure your business stays compliant.

[1] Most employees in the private sector are covered under the NLRA.  The law does not cover government employees, agricultural laborers, independent contractors, and supervisors (with limited exceptions). 

​What Are "Stay or Pay" Provisions?

“Stay or Pay” provisions require employees to repay certain costs—such as training or signing bonuses—if they leave the company within a specific period. While these agreements have become more common, especially in industries with high turnover, they can now raise serious legal red flags under the NLRA. 

When Are "Stay or Pay" Clauses Presumptively Unlawful?

According to the NLRB’s General Counsel, “Stay or Pay” agreements could be found unlawful if they are viewed as coercive or as restricting an employee’s right to freely change jobs or engage in collective bargaining under Section 7 of the NLRA. However, these clauses may still be valid if they meet the following criteria:
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1. Tied to a Legitimate Business Interest: The repayment obligation should directly relate to a legitimate business interest, such as recovering costs for specialized training that uniquely benefits the employee and the company.
   
   
2. Voluntarily Entered Into: The agreement must be voluntary, with the employee receiving a clear tangible benefit in return for agreeing to repay certain costs. If the clause is imposed as a mandatory condition of employment, it is more likely to be seen as coercive.
   
   
3. Reasonable in Repayment Amount and Duration: The repayment amount must reflect the actual costs incurred by the employer and not serve as a penalty. The timeframe for repayment must also be reasonable and tied to the nature and cost of the benefit provided. Long repayment periods for minimal training could be problematic.
   
   
4. No Repayment for Termination Without Cause: If an employee is terminated through no fault of their own (i.e., not for cause), they should not be required to repay any costs. Clauses that demand repayment after an involuntary termination are presumptively unlawful.

Why the Scrutiny?

The NLRB has stepped up its focus on “Stay or Pay” agreements because of their potential to restrict employee mobility—which can have a chilling effect on employees’ rights to seek better employment opportunities or organize for improved working conditions. This crackdown is part of a broader effort to protect employees' rights under Section 7 of the NLRA, which guarantees employees the right to engage in collective activities for mutual benefit.

What Should Employers Do?

To ensure compliance with the new rules, here are some steps you can take:
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1. Review All Employee Repayment Agreements: Go through your existing repayment agreements, particularly for training and bonuses, to ensure they meet the NLRB’s criteria. Ensure the repayment amounts reflect the true cost to your business and that the duration is reasonable.
   
   
2. Make Adjustments as Needed: If you find that your agreements could be viewed as punitive or coercive, consider revising them. For example, make sure employees who are terminated without cause are not required to repay any costs.
   
   
3. Clarify Voluntariness: If your employees are required to sign these agreements as a condition of employment, consider revising them to ensure that participation is truly voluntary and in exchange for a clear benefit, such as optional training.
   
   
4. Avoid Non-Competes in Conjunction: In addition to “Stay or Pay” provisions, ensure that any non-compete agreements you have are also in compliance with labor laws. The NLRB has expressed concerns about overly restrictive non-compete clauses that limit employee mobility.
   
   
5. Audit Contracts Before December 2024: The NLRB has given employers a grace period until December 6, 2024 to review and amend existing agreements to comply with these guidelines. After that, the NLRB will proactively enforce compliance through unfair labor practice charges.

Final Thoughts

Nervous in Neenah, it’s crucial to review and, if necessary, revise your employee repayment agreements now to ensure they meet the NLRB’s new standards. Failure to do so could expose your business to significant legal risks, including unfair labor practice charges. As always, staying proactive is the best way to protect your business while respecting your employees' rights.

If you need help reviewing or revising your repayment agreements, feel free to reach out. We can help you navigate these changes and ensure your business remains compliant.
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Warm regards,
Attorney Bob

P.S. Need help navigating labor law changes? Contact us at NextGen Legal for a thorough review of your employment agreements!

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About Attorney Bob

​Bob Sanders is an Attorney and the founder of NextGen Legal. After spending over a decade in BigLaw, working with clients of all sizes across the US, he became acutely aware of the recurring barriers that deterred businesses from seeking proactive legal advice: shrinking legal budgets competing with escalating fees. This realization spurred Bob to create NextGen Legal, a firm designed to eliminate these barriers and provide clients with the high-quality legal advice they need, exactly when they need it. 

At NextGen Legal, we're transforming the traditional law firm model. Bob’s extensive experience in labor and employment law has been instrumental in shaping a service that offers both day-to-day legal counsel and rapid response for emergent issues. We strive to empower our clients with the knowledge and strategies necessary to navigate the legal landscape effectively and make confident employment decisions, without the fear of unexpected costs.
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Rated a Rising Star by SuperLawyers (an accolade reserved for only 2.5% of attorneys in Wisconsin), Bob provides strategic legal advice and counsel to companies of all sizes, helping business leaders make confident, informed decisions. His expertise spans employment law, regulatory compliance, litigation, safety, corporate strategy, and risk mitigation. Bob excels in transforming complex legal challenges into clear, actionable business solutions, offering strategic guidance to leadership teams.

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