Debt Traps For Employees
In recent years, there has been a widespread imposition of “stay-or-pay” contracts. These agreements force workers to compensate employers if they leave their job before a set time period.
The contracts are called “TRAPS” – a Training Repayment Agreement Provision.
Employers could legally require workers to pay “liquidated damages” for on-the-job training or use of equipment.
Some of the TRAPS demanded unspecified damages for the cost of recruiting a replacement or for the “lost profits” from a worker’s departure. The debt could easily amount to over $10,000.
Employers could also demand that departing employees pay them for not providing a 4-month notice of resignation.
TRAPs could be enforced against a departing worker for any reason, including to navigate personal hardship such as a family health crisis or a childcare shortage.
In 2020, almost 10% of workers surveyed were potentially bound by a TRAP.
TRAPs were increasingly common in the beauty, nursing, and trucking industries.
In some cases, the certifications or credentials at issue were not even transferrable to other jobs; instead, the programs were company-specific and rudimentary.
(Some of the TRAPS seemed almost absurd. For example, a former employee of PetSmart was told that her “Grooming Academy” course was an excuse for TRAP collection activity.)
Finally, we are seeing federal reform in this area…
Since the 1990s, angry employees have attempted to challenge these predatory provisions in court.
Fortunately, the Federal Trade Commission (FTC) is now working on the case.
In April 2024, it released a final rule that would restrict companies from requiring workers to enter non-compete agreements and functionally similar contracts.
This ban includes Training Repayment Agreement Provisions (TRAPs) and other stay-or-pay contracts, where these contracts “function to prevent a worker from seeking or accepting other work or starting a business after the employment.”
In response, advocates released the following statements:
“The new FTC rule will limit the ability of employers to use debt to lock nurses into unsafe jobs and will protect their role as patient advocates. We commend the FTC for standing up for workers,” said Jean Ross, RN, President of National Nurses United.
“What’s old is new again. Like indentured servitude contracts of centuries past, contemporary TRAPs deny American workers the ability to seek better pay and working conditions across industries. Forced indebtedness for basic on-the-job training is another form of non-compete clause, and it’s both coercive and exploitative. The FTC is comfortably within its authority to address non-competes and TRAPs in the same breath.”
(from Lee Hepner, Counsel at the American Economic Liberties Project)
The fight is not totally over….typically there will be holdout employers who still try to enforce TRAPS.
Workers will still have to go to lawyers in many cases. In our largely non-union country, all pro-worker regulations will take time to become universal.