Mid-Atlantic Health Law TOPICS
Stay or Pay Provisions
On October 7, 2024, Jennifer Abruzzo, General Counsel of the National Labor Relations Board (NLRB), issued a memorandum expressing her opinion on several topics, including her conclusion that “stay or pay” provisions in employment agreements violate the National Labor Relations Act (NLRA).
Stay or pay provisions require employees to pay something or pay back something
to their employer in the event that the employee separates from employment.
Two Justifications
According to the memorandum, employers typically advance two justifications for stay or pay arrangements. The first is to lock employees into their jobs by imposing a financial barrier to separation, such as quit fees or damages clauses, which the General Counsel claims “are aimed solely at holding onto employees.” The General Counsel finds that such provisions are “problematic” under most circumstances.
A second basis advanced by employers for the provisions is that they are means to “recoup payments toward employee benefits where an employee does not remain employed long enough for the business to reap its anticipated returns.” The memorandum notes that such agreements may “reflect a legitimate business interest,” and provides that employers may rebut the presumption of unlawfulness by demonstrating that such agreements “are narrowly tailored to minimize any interference” with the NLRA.
Relevant Factors
The Memorandum goes on to explore certain relevant factors, such as the voluntariness of the stay or pay provision, the reasonableness of the repayment amount, the reasonableness of the “stay” period and whether the stay or pay provision will be enforced if the employee is terminated without cause.
Caveats
Given the upcoming change in Administrations, it is quite possible that the NLRB, in a Trump Administration, would reach different conclusions or choose not to initiate enforcement provisions consistent with the memorandum.
Also, it should be remembered that the NLRA only applies to employees who are not managers. Accordingly, employers may assert that, even if the memorandum is correct, it does not apply to physicians, for example, who supervise others.
Charles R. Bacharach
410-576-4169 • cbacharach@gfrlaw.com