This transcript has been auto generated
00;00;02;11 - 00;00;24;07
Tom Godar
Hello and welcome to the Labor Law Insider podcast. I'm your host, Attorney Tom Godar, and I work with Husch Blackwell and have been involved in labor law for more than four decades. I'll tell you what, there has been a wild ride over the past three and a half years of the Biden administration. He fulfilled his promise to be the most union friendly president ever.
00;00;24;17 - 00;00;50;25
Tom Godar
And as a result, between General Counsel Abruzzo and the National Labor Relations Board, there's been a sea change in the way that labor law has been interpreted and applied. So we will have guest to discuss what's new, what's challenging and what might be the ways in which our friends, our clients and others advising companies might do to accommodate these changes in the labor law world.
00;00;51;00 - 00;01;14;14
Tom Godar
It's a wild ride, so buckle up and come and join us on the Labor Law Insider podcast. Hello and welcome once again to the Labor Law Insider. This is Tom Godar your host and we are looking at changes that take place in labor and employment laws that we want to bring to your attention and especially those that affect your current policies or any of your current practices or agreements.
00;01;15;00 - 00;01;43;00
Tom Godar
And once again, the NLRB does not disappoint. Today, we're going to talk about the latest iteration of the board saying no to really long time employment employer practices. For a while, for a year or more. The National Labor Relations Board has told us that it would not allow employers to have non-compete agreements with those who are otherwise covered under the board's rules, laws and jurisdiction.
00;01;43;10 - 00;02;08;01
Tom Godar
The FTC got in on the act, too, and we're going to talk about both of those things. But what we're going to focus on today is the new recognition and offering by the National Labor Relations Board and its general counsel that so-called pay or stay provisions in agreements are also illegal and subject to fairly harsh enforcement remedies. If an employer is engaged in that sort of activity.
00;02;08;14 - 00;02;31;02
Tom Godar
I'm joined today by one of my favorite guests, Tyler Paetkau, one of my partners at Husch Blackwell works out of our California locations, but practices all over the place recognize all sorts of what I call vanity lists, but they have some value as one of the best lawyers around. I was looking at what I could, Tyler, on the web for more information about you.
00;02;31;03 - 00;02;49;09
Tom Godar
You know, I was just what is that called in your stocking or something? I want to find out something you hadn't told me. So I looked up Tyler Paetkau and I don't know, five or ten of the list down after he got through Husch Blackwell and best lawyers and all those things. It said that you had a life that I didn't even understand.
00;02;49;09 - 00;03;06;28
Tom Godar
You had you had written a paper this year on inductive risk and epistemically detrimental dissent in policy relevant discussions. It was written in the European Journal of Philosophy of Science. I didn't know that part about your life. Tell me more about it here.
00;03;07;09 - 00;03;28;06
Tyler Paetkau
So I'm not familiar with that publication. Tom I'm trying to think back. I did write a history thesis on University of Michigan campus administration interaction during the 1960s, so that might have been picked up in that European journal. But since then it's been all law for me.
00;03;29;28 - 00;03;38;20
Tom Godar
You know, you must have an unknown, but somewhat famous relative who's a philosopher. And I know that you wax philosophical about Michigan football, Tyler, but.
00;03;39;12 - 00;03;44;18
Tyler Paetkau
That sounds more interesting, the philosophy career. But I'm not there yet.
00;03;44;18 - 00;04;13;21
Tom Godar
All right. Well, you'll have to look at the European Journal of Philosophy of Science. I my undergraduate was really spent in the philosophy of education. Where I became a lawyer is a whole different story. So I really kind of dig that. But I'm not sure if I even understood the title. But mostly it says that dissent, as I started reading the cover, that dissent in science isn't always an excellent idea, even though that's how science advances kind of a compelling narrative.
00;04;13;21 - 00;04;37;16
Tom Godar
But let's not hasten ourselves into the irrelevant any further. Let's talk a little bit about what's happening in the labor law world. First, tell us a little bit of background, Tyler, and what's going on with the National Labor Relations Board and non-compete agreements, stuff that our clients have used or not used for many, many years. How was that changing first over the last couple of years before we get to the pay or stay?
00;04;37;20 - 00;04;39;25
Tom Godar
Questions that have arisen since October seven.
00;04;40;12 - 00;05;05;22
Tyler Paetkau
Yeah. Thank you, Tom. And it's great to be on the Labor Law Insider again, it seems like the NLRB just keeps giving us more gifts and this is another one. This area has already been the subject of a lot of debate. I know that under the Obama administration there was a committee formed to study no poaching agreements, restrictions on employee mobility, nothing ever came of that.
00;05;05;22 - 00;05;30;12
Tyler Paetkau
There was a bill in Congress to ban poaching, no poaching agreements or to prohibit employers from restricting employee mobility. But it never got through the Senate and the House was never presented to the president. But it's been a rumbling here now for about a decade. We did have the FTC. Well, let me just go and order in May of 2023.
00;05;30;12 - 00;05;56;21
Tyler Paetkau
So over a year ago, the NLRB general counsel, Jennifer Brazeau, the gift that keeps on giving, issued an advice memorandum that surprised Julie. You know, we think about the NLRB, we think about union activity, election activity, organizing activity, unfair labor practice charges. And they're kind of veering into areas that traditionally they have not spent a lot of time.
00;05;56;21 - 00;06;30;07
Tyler Paetkau
So May of 2023, there was a memo authored opining that the proper maintenance or enforcement of non-compete provisions, post-employment non-compete violates the national Labor Relations Act. The theory of this May 2023 memo was it violates Section seven and the general counsel, Ms.. Abruzzo, emphasized as to how these provisions, including non-compete and now stay or pay provisions, interfere or infringe on employees.
00;06;30;07 - 00;06;59;00
Tyler Paetkau
Section seven rights to find a better job to complain about the workplace. And at least the NAB has opined that these provisions are not only unlawful, but she wants to find a real remedy for them and not just talk about it. So May 2023 was the memo essentially banning all post-employment non-compete? That's a federal agency we know in California and some other states.
00;06;59;00 - 00;07;25;21
Tyler Paetkau
They've been banned for a long time. In my state, non-compete have been unenforceable since 1872, and a number of other states, a minority of states still enforced on competes, including Ohio, Minnesota, Texas. To a certain degree, New York, a handful of states still enforce in Florida. But in California, we've been living with that for some time. So this is a new challenge for employers.
00;07;26;03 - 00;07;55;09
Tyler Paetkau
And this May 23 memo was followed by the FTC rule that you all have read about and heard about in the news. It's mentioned in this new advice memo, the FTC non-compete clause rule, which was published May seven, 2024, and that was set aside by a federal district court in Texas Northern District of Texas in a case called Ryan, an LLC versus FTC August 20, 2024.
00;07;55;19 - 00;08;27;13
Tyler Paetkau
So we're no longer dealing with that FTC non-compete rule, but now we have the NLRB being more even more assertive, more aggressive in policing these agreements. And this time it's extended beyond just a traditional non-compete and attacking what many of employers, including California, often include what the NLRB calls stay or pay arrangements, which typically the employer would say, we're going to reimburse you, for example, for getting additional education for work.
00;08;27;25 - 00;08;41;15
Tyler Paetkau
But if you leave us within a year, you've got to pay back the tuition. That's kind of the traditional stay or pay arrangement that's being attacked in this new advice memorandum. And I will stop talking because I was talking for way too long already.
00;08;43;04 - 00;09;04;20
Tom Godar
Well, that's because there's a lot of stuff and a lot of moving parts, man. I appreciate that. And it really was a quick summary of what's been going on both for a long time in the last couple of years. And you're right, there's lots of state action in this as well. In the state where I practice primarily Wisconsin in 2023, legislation was introduced to be like California to virtually ban all non competes.
00;09;04;20 - 00;09;45;25
Tom Godar
It didn't go anywhere, but it's a topic of conversation at many levels. And you know, when you started out, you talked about the board's decision, the general counsel issuing advice memorandum. But we've also had a 2024 decision that found that non competes were indeed illegal under the board law and that was in the jail Morey case that came out I think this summer in basically it took what might have been maybe an overbroad non-compete in some jurisdictions, but it found that it would be a violation of the National Labor Relations Act to have a non solicitation provision that prevents pirating by prohibiting employees during their employment.
00;09;45;25 - 00;10;08;22
Tom Godar
And for 24 months after to persuade other employees to come, it set a non-compete provision that prohibited former employees for 12 months from directly or indirectly engaging in working for another business similar with the employers business and so forth. I don't know all of the details of the non-compete, but some of it sounded like garden variety stuff and the board has found that illegal.
00;10;08;22 - 00;10;36;18
Tom Godar
A lot of our clients don't particularly like non-compete themselves. It interferes with their ability to hire as well as is burdensome. But they think that in some circumstances it might be really helpful when there's somebody who's highly identified with the company like a doctor, or when there's somebody who's received a lot of technical training and there's local competition, and all of that training is going to be moved over, especially and with the goodwill that employee leaving.
00;10;36;18 - 00;10;59;01
Tom Godar
And I think it might be reasonable, but all of those are out the window, it seems to me, with these rulings, unless they're overturned and now we've got the pay or stay provisions, how does that extend the difficulties that employers might have with really organizing their workplace and providing, you know, training and other opportunities for their employees?
00;10;59;01 - 00;11;22;22
Tyler Paetkau
Tell great observations, Tom. You know, I would just add that, you know, in California, I mentioned post-employment non-compete. It's have been unlawful in most cases, unless it's a sale, a business, the sale of goodwill since 1872. We're used to that. You know, a lot of people would tout that law in California for the surge in the economy. We wouldn't have the Silicon Valley.
00;11;23;06 - 00;11;45;22
Tyler Paetkau
We'd have one company, I guess IBM. And we wouldn't have Cisco and Intel and Oracle and all the other companies that spun out of Big Blue. There's a famous painting or picture, I should say, where all of these executives are sitting around a big boardroom in the fifties, and they all went on to become CEOs of very successful tech companies.
00;11;45;23 - 00;12;10;14
Tyler Paetkau
A lot of people attribute that to this law in California that very strictly bans post-employment non-compete. You can go to work for a competitor the next day across the street and directly compete with your former employer, at least in California. I view that, you know, non-compete law very differently from these the new attack on stay or pay provisions.
00;12;10;26 - 00;12;40;06
Tyler Paetkau
You can understand why a non-compete would interfere with mobility and and upward mobility and getting a better opportunity. Well, you can't compete, so you can't improve your your station. But these stairs pay provisions, I think, are more explainable from an investment standpoint. If I'm an employer and I'm going to send somebody to get an MBA or some advanced degree for the job and they're going to come back and help the company and lead the company.
00;12;40;18 - 00;13;07;18
Tyler Paetkau
That's a big investment and I want to protect my investment. And I don't think it's anti-competitive for the employer to say if you leave early, you're going to pay some of that money back. It's logical. There is no statute like with non-compete that prohibits it. This is the NLRB going out, I think, on a limb and attacking provisions that have been a longstanding practice, even in California, these are generally enforceable.
00;13;08;04 - 00;13;48;26
Tyler Paetkau
So what our stay or pay provisions, essentially, they require employees to pay their employer if they separate from employment within a certain timeframe. Typically they include training or repayment agreements or what the NLRB colorfully calls traps, traps, traps, educational repayment contracts, quip fees, damages clauses, sign on bonuses and other special or similar arrangements. And at least according to the current LRB, those restrain mobility employees might stay longer than they would otherwise because they're worried if I leave early, I got to pay back half of the tuition, for example.
00;13;49;21 - 00;14;20;13
Tyler Paetkau
And that's the theory behind this. So there are some exceptions to, you know, the enforcement or non-enforcement of these provisions. There's a number of factors that the board outlined in this memo. I should also and we can go through those a little more detail. One of the big ones is, does the employee make enough money to justify having to pay back the advance or the tuition payment so it's based on their salary and their ability to repay the money.
00;14;20;27 - 00;14;51;15
Tyler Paetkau
How penal is it if they leave early but just before I forget, the NLRB in this memo gave employers 60 days to fix any of these provisions that that at least according to the board, are unenforceable. The stay or pay provisions and 60 days expires December six, 2024. So that's a date to keep in mind. If you have these provisions, you might want to take a look at them and there's a number of steps the board outlined in its memo.
00;14;51;22 - 00;15;22;00
Tyler Paetkau
Mr. Brazeau Everything from altering the repayment amount, changing the stay period, how long to stay, amending the provision to make clear that repayment is not required if the employee is terminated without cause. And of course notify the employee of this change, make sure that the agreements are voluntary, and then to stop any kind of debt collection enforcement until you can reach an agreement with a departing employee regarding a repayment obligation.
00;15;22;00 - 00;15;51;06
Tyler Paetkau
So I will stop there. But this is significant because again, it's not a state law. It is a federal law. And this National Labor Relations Act, NLRA, the act applies broadly. You know, across the country, employers engaged in interstate commerce, which is pretty much everyone. And there is an exception for supervisors and managers, but it still catches a lot of employees under the jurisdiction of the NLRB.
00;15;51;06 - 00;16;08;03
Tom Godar
You know, as I listen to this, Tyler, I think of my clients. I was speaking to folks in the construction industry a couple of days ago. And so as I was setting this up, I said, how many of you have opened positions? Virtually every person in the room. These are people that were managers, supervisors and a lot of h.r.
00;16;08;03 - 00;16;27;05
Tom Godar
Types. Virtually every person in the room raised their hand and i if i had asked the next question, almost everybody have raise their hand to which is how many of you have bonuses to attract new employees? And so sometimes, you know, you've got a grand or 2500 bucks or whatever it is to start work, and maybe that's paid out over time.
00;16;27;05 - 00;16;47;03
Tom Godar
But oftentimes it's a one time pay. But when you get look at it more carefully, oftentimes it's a, you know, you got to repay this or you don't stay for a year. I'm not going to give you a 2500 bucks on day one. And then on day two, you're up to the next 20 $500 round up, right? So essentially what I'm hearing is that employers are going to end up paying people less.
00;16;47;06 - 00;16;57;16
Tom Godar
I'm just let's be honest, they say, to heck with it. Why am I going to give that bonus if I have risk that it's never going to pay off in a long term employee. But the board doesn't seem to care. Am I missing something here?
00;16;57;29 - 00;17;27;10
Tyler Paetkau
No. I think that's a really good argument to push back. You know, if employers are going to adjust and say, I don't want a lawsuit, I don't want to be fighting with a board over lost wages and benefits, compensation, legal fees. So I'm just not going to offer the advance the sign on bonus or even tuition at this point, because there's too much of a risk that I'm going to be going to have to not only not enforce that pay back, I may have to pay the employee money.
00;17;27;19 - 00;17;51;09
Tyler Paetkau
So why bother? That's an argument against including them. And you're right, you know, to be cynical about it, a lot of employers will conclude it's not worth it. And instead of giving the 2500 or could be a $10,000 signing bonus, we're just going to forgo that and we'll pay less to the employee. And if they succeed and they perform well, we'll make it a bonus at the end of the year.
00;17;52;04 - 00;17;52;25
Tyler Paetkau
It's easier.
00;17;53;06 - 00;18;19;01
Tom Godar
Well, and the same thing has been true historically with all sorts of folks who may or may not be under board jurisdiction. But assuming that you're bringing in a professional as opposed to maybe a manager, supervisor, executive, and you're having her or him move cross-country and say you have a $25,000 moving allowance along with, you know, coming out here with your family, if you'd like, use that towards hotels and cars or whatever you want to do.
00;18;19;01 - 00;18;40;03
Tom Godar
Yeah, $25,000 is part of the package to come and see if you want to move to Milwaukee or Oakland or wherever it might be. If that's not tied very carefully to actual value received, if it's not voluntarily entered into which is the in places yes or no, I want to have that. But I recognize it will be in the form of a loan that'll take a year or two of work to forgive.
00;18;40;03 - 00;19;06;07
Tom Godar
If the board says the time period over which that loan, so-called loan is forgiven isn't reasonable, it's too long and all that sort of stuff there too might go by the wayside. Or the employer is just taking another significant risk that somebody is going to work there for two months. They can't have a non-compete, and then they're going to go walk down to the street, to the next clinic, to the next manufacturer, to the next service provider, and say, Hey, I'd like to work for you.
00;19;06;19 - 00;19;15;06
Tom Godar
What's that going to do to, you know, employers sort of analysis of creating that kind of incentive to join the organization?
00;19;15;10 - 00;19;37;23
Tyler Paetkau
Yeah, I think it's a real problem. You know, I would just use the California example where employees can do that. They can leave and go work for a competitor. We put a lot of time and effort into defining trade secrets and restricting use of trade secrets as opposed to contractual covenants, covenants not to compete or covenants not to solicit customers or employees.
00;19;37;23 - 00;20;00;03
Tyler Paetkau
But that is a risk. And, you know, these provisions that are being attacked, you know, I'm setting aside now the traditional non-compete, but to pay or stay are problematic that employees you know, if you're cynical about it, they've been doing this for a long time and you assume the worst and even in nature, you're going to have employees are going to take advantage of this.
00;20;00;15 - 00;20;20;07
Tyler Paetkau
You know, I think they're very increasingly savvy about this stuff. They're going to take the money and then they're going to say, no, no, no, no, no, you can't touch me. You know, go talk to the NLRB. You know, how does an employer deal with that one? You know, you may not be able to attract the talent in the first place without offering a signing bonus.
00;20;20;18 - 00;20;50;25
Tyler Paetkau
It might be a non recoverable bonus. You know, under this new guidance to avoid a claim. But I see all kinds of mischief here by extending this rule to pay or stay provisions and requiring employers across the country now to rewrite their provisions by December six. I don't think a lot of our clients understand that, that they're going to get challenges come January to some of these arrangements that are in place.
00;20;51;14 - 00;21;15;03
Tom Godar
I love that. And I think we'll wrap up with just two things that are on my mind. One, you talked about really a much more sophisticated approach to protecting confidential information. And again, the board says certain confidential information can be protected, but it can be overbroad. So you have to be very careful. And the second one is what happens if you're found to have violated this?
00;21;15;03 - 00;21;29;08
Tom Godar
So just a sentence or six on the kinds of ways in which employers should be very careful about, but can use some protection for their goodwill, their intellectual property, that sort of thing.
00;21;29;14 - 00;21;56;24
Tyler Paetkau
Yeah. So this is still evolving, but at least according to this recent memo, memoranda from the General Counsel, the general counsel has come out and said that she will seek rescission of the unlawful stay or pay provision and require a written notice to all affected employees that the stay obligation has been eliminated, any debt has been nullified, they can leave in peace and not be sued and not have to pay back the money.
00;21;56;24 - 00;22;26;27
Tyler Paetkau
So that's rescission of that contract. Lost wages and benefits for employees who claim they were discouraged from pursuing a better opportunity by the unlawful provision that general counsel will seek compensation for those individuals. The delta between what they would have made at a new job and what they made by staying at the current employer. So that's a real wild card compensation for repayments made so that if employee honors the agreement, they pay back the money.
00;22;27;07 - 00;22;55;04
Tyler Paetkau
The NLRB general counsel, at least here, is saying that they may require the employer to pay back that money to the individual. So that's money that's already been paid to the employer to pay back a loan, to pay it back to the employee legal fees, collection fees, harm to credit rating and financial harm are all on the list on the agenda of the general counsel to redress and even additional financial and pecuniary harms.
00;22;55;04 - 00;23;16;07
Tyler Paetkau
And this example that they give as an employer could be required to pay for moving related costs if an employee had to relocate to obtain employment within the industry and cover the cost of any retraining efforts undertaken, they may be able to get that money back from the employer for a violation of this conclusion of stay or pay provision.
00;23;16;18 - 00;23;40;24
Tom Godar
You know, it's a brave new world that employees live in, and it may just cost more to hire people. It may cost more to keep people. There may be pure certainties about protecting what you believe was goodwill that you invested in an employee and that sort of thing. But that's the reality. Is there any possibility by the way, that the courts can say, no way, this doesn't really fit into the National Labor Relations Board protected and concerted activity.
00;23;40;24 - 00;23;49;18
Tom Godar
You're really stretching the definition, you know, under Section seven of what it is your role is back off. And is that possible?
00;23;50;12 - 00;24;14;10
Tyler Paetkau
Yeah, I think anything is possible. You know, Tom would probably know better than anyone. It takes a long time to challenge a ruling by the board or a finding by the board. There is an appeal to the D.C. Circuit. Well, first to the full board, it's unlikely the current board is going to overturn Mr. Bruce's advice memoranda. It may change with a change in administration on November 5th.
00;24;14;24 - 00;24;49;17
Tyler Paetkau
There may be changes to a lot of what we've been talking about for the last two years. On the labor law. Insider Absent that, you know, a challenge in court, the D.C. circuit or whatever circuit the alleged unfair labor practice occurred is another avenue to challenge this, but that takes a lot of time and conceivably even to the U.S. Supreme Court, if there is especially if there's a divergence of law on this issue of pay or stay or even the non-compete, which is still in the last years, advice, memoranda.
00;24;50;08 - 00;25;19;18
Tom Godar
But let's be clear, there's an awful lot of deference to the board in interpreting its own law right. And the breath with which laws are interpreted by administrative action. It's one thing, but by advice, memoranda consist then with decisions that are made after that. Not an easy challenge sometimes, and which we've seen courts recently say, Hey, board, you kind of cracked up here, but if you're a betting person, you know, put a lot on that bet, in my estimation.
00;25;19;26 - 00;25;34;14
Tyler Paetkau
No, no, the better bet is we get a more business friendly board in place. And a lot of these rules that were changed from the Trump board will be changed back or at least softened for employers.
00;25;34;18 - 00;25;42;23
Tom Godar
Yeah. And here's a blue state lawyer from California talking about maybe a change. I'm in Wisconsin, a very purple state. I've got no predictions to offer.
00;25;43;09 - 00;25;51;08
Tyler Paetkau
So, yeah, I'm not in the predicting game. I just know that the board policy, you know, it's just dramatically based on the elections.
00;25;51;28 - 00;26;18;16
Tom Godar
The famous adage that elections have consequences and that's certainly true when it comes to national labor relations decision making, even though the NLRB doesn't change much or the LMR doesn't change much from decade to decade. Interpretation? Sure do. Hey Tyler, this has been awesome. Thanks so much for jumping in on this very important topic. I hope that a number of our listeners are now alerted to the December deadline and will take steps accordingly.
00;26;18;16 - 00;26;40;15
Tom Godar
And certainly if this is important to others in your network, share the podcast, share the word. We also have a labor law alert on this that you can find on our Husch Blackwell website. And I think we'll have that probably in our podcast show notes that you can get to. So we'd love to have you share the good or bad information and certainly the timely information that we try to offer in our podcasts.
00;26;40;28 - 00;26;46;00
Tom Godar
And thank you so much for joining us, Tyler, on The Labor Insider. Really appreciate it.
00;26;46;15 - 00;26;48;01
Tyler Paetkau
Thank you, Tom. It's been a pleasure.
00;26;48;22 - 00;27;04;02
Tom Godar
And thank you. Our audience, our friends, our clients for becoming labor law insiders. Take care.