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03/12/2025

Stay-or-Pay Provisions

Source: Federated Insurance, February 18, 2025

Question

To provide professional development for our employees and make them more effective at their jobs, we pay for extensive training and educational courses. However, we have had three employees within the past year take the company-paid training and educational courses and then leave our company shortly thereafter, before we had a chance to earn a return on our investment. Are we allowed to implement “stay-or-pay” provisions, in which we require employees to pay back the amount of the courses if they leave our company within, for example, a year after completing the courses?

Answer

Stay-or-pay provisions are contractual terms that require employees to repay their employers if they terminate employment (voluntarily or involuntarily) within a specified time period. Examples include training repayment agreement provisions (also known as TRAPs), educational repayment contracts, quit fees, damages clauses and sign-on bonuses. Stay-or-pay provisions are generally considered a type of noncompete agreement because they discourage employees from seeking new employment elsewhere by imposing financial penalties if they leave their jobs.

In 2023, the General Counsel (GC) of the National Labor Relations Board (NLRB) issued a memorandum declaring that overbroad noncompete clauses are unlawful because they chill employees from exercising their rights under the National Labor Relations Act (NLRA). More recently, on Oct. 7, 2024, the GC issued a memorandum asserting that certain stay-or-pay provisions unlawfully infringe on employee rights under the NLRA. Although the GC memorandum is not binding and has not been adopted by the NLRB, it provides a framework for the NLRB to establish the validity of stay-or-pay provisions and notifies employers that such provisions will be an area of focus for the NLRB’s enforcement efforts in the future.

Before moving forward with any type of noncompete agreements or provisions, including stay-or-pay provisions/TRAPs, employers should check their state laws. Noncompete agreements are generally governed by state law; therefore, the validity and enforceability of these contracts will vary by state. Since noncompetes are often the subject of litigation, employers should also consult with legal counsel when drafting any agreements or provisions.

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