Employers increasingly using stay-or-pay “contracts” that facilitate exploitation

Since the declaration of the global pandemic in 2020, awareness about fundamental disparities in the labor market between employers and employees has grown significantly. Consequently, and as an example, States like Minnesota have outlawed non-compete “agreements” that limit people’s ability to support their families and advance in their line of work. In addition, Minnesota Attorney General Keith Ellison and other State Attorneys General across the country have aggressively investigated and prosecuted wage theft, employee misclassification, and related retaliation claims against employers.

In this context, it is both unsurprising and disappointing that some employers are now pursuing an alternative strategy to maintain and even expand their leverage over employees. This approach uses training repayment agreement provisions (TRAPs). Such “agreements,” often referred to as stay-or-pay provisions, force employees to pay potentially tens of thousands of dollars to their employer if they resign. Employers typically prepare TRAPs so that any dispute about the validity or enforceability of the “contract” will be decided in private by an arbitrator ordinarily paid by the employer involved.

Based on a recent investigation and report issued by the Consumer Financial Protection Bureau (CFPB), creating an employee-as-debtor relationship triggers an array of potential problems:

• Given employers that issue the debt in question also control employees’ ability to repay the debt, employees may have difficulty asserting their rights and otherwise ensuring that employers comply with their responsibilities under law;
• Employers may impose the stay-or-pay “contracts” on prospective employees as a requirement of employment, potentially coercing employees into signing TRAPs that hide the details of the debt arrangement and the fact that employers may change the debt terms without employees’ agreement or even awareness; and
• Overall household financial stability may suffer because employees face lower earnings, damaged credit scores, and additional debts to meet repayment-related obligations to their former employers under the terms of TRAPs.

Fortunately, the CFPB has publicly committed to coordinating investigative and enforcement work with other agencies to combat TRAPs and similar coercive tactics used by employers against employees. This interagency collaboration to enhance workplace fairness and employee protections is part of a larger coordination at the Federal level to secure employer compliance with labor & employment law and civil rights statutes. In particular, the United States Department of Labor, the Federal Trade Commission, the United States Department of Justice, the National Labor Relations Board, and the United States Equal Employment Opportunity Commission have combined forces to enhance their individual and collective effectiveness. In so doing, these agencies have charted a more progressive path forward than under the prior Federal Administration.