Consider finding a new job with a company: On your first day, the company explains that it will invest a significant amount of time and resources in training you. In return, the company expects you to sign a training repayment agreement. If you leave before three years, you owe the company repayment for the cost of training. Makes sense. However, it’s the finer details that matter. What if your salary is $50,000 and the cost of training is $50,000? Contrast that to an employee earning $150,000 who must repay only $5,000.
Is the employee earning $50,000 going to be able to pay back $50,000? Does that mean the employee may never be able to leave that job? The answer to that is of increasing interest to the federal government…
Although rendered invalid by a federal court in Texas, the Federal Trade Commission’s Final Rule banning non-compete provisions attempted to ban repayment provisions, as well by including an expansive definition of what the FTC would consider as a “non-compete” provision. In effect, if a repayment provision requires a repayment so burdensome that the employee does not have the option to leave, the provision acts as a non-competition provision.
The National Labor Relations Board (NLRB) is waging its own war against non-competition and training repayment provisions. The Regional Director of Region 9 in Cincinnati approved a settlement agreement earlier this year resolving an unfair labor practice charge against an employer specifically on this point. The complaint against the employer alleged numerous violations of the National Labor Relations Act including unlawful confidentiality, non-disparagement, non-compete, non-solicitation, and training repayment provisions. The training repayment provision in contention required an employee leaving to pay approximately $75,000 to the employer.
Not to be outdone, the NLRB General Counsel issued a memo on October 7, 2024, stating the NLRB’s intent to prosecute companies requiring employees to sign non-compete agreements with “stay-or-pay” provisions. As the memo specified, the “stay-or-pay” provisions include training repayment programs, quit fees, damages clauses, and sign-on payments. This “intent to prosecute” could extend to any agreement that required an employee to pay an employer when they separate from a company.
Note the precise language of the confidentiality, non-disparagement, non-compete, non-solicitation, and retraining provisions were challenged. All provisions are not drafted equally. The provisions found after a Google search, found in an agreement in a desk drawer used in 1990, or from various lawyers can differ. The legality of these provisions change with time and updates to the law. If you or your company is questioning whether the legality of your agreements will withstand scrutiny, Bricker Graydon’s Labor & Employment group is here to assist.
