In the current labor market, a historically low unemployment rate and an increase in union activity should mean increased employee leverage and an incentive for employers to improve working conditions and increase wages. Some employers, however, are finding new and creative (and predatory) ways to keep people employed while avoiding these common-sense solutions. One way employers are doing this is by saddling employees with loads of debt, specifically through the increasingly popular practice of Training Repayment Agreement Provisions or “TRAPs”. This post will explore the rise of TRAPs in the American workplace and survey some existing and potential legal challenges. Put simply, TRAPs exploit workers, particularly low-wage workers, exacerbating the already unequal bargaining power between these workers and their employers.
A TRAP is a provision in an employment contract that “requires the employee to pay the employer a fixed or pro rata sum if the employee received on-the-job training and quits work or is fired within a set period of time.” This sum ostensibly is intended to offset the cost of training. While TRAPs have been in use since the 1980s, they have typically been confined to companies with high-wage workers. Examples include TRAPs for engineers and financial executives requiring them to either repay the cost of training or remain employed for a set period of time. Many of these programs cover the cost of graduate degrees and other licenses. This makes some sense. Even if the employee leaves before the allotted time and must cover the cost of their schooling, they retain a degree or certification that is transferrable and valuable at other jobs.
Now, however, we are seeing more low- and middle-wage employers using TRAPs. In 2020, almost 10% of workers surveyed were bound by a TRAP. They are increasingly common in the beauty, nursing, and trucking industries And often these training programs do not offer certification or credentials that are transferrable to other jobs; instead, many of these programs are company-specific and rudimentary, hardly worth to the employee the value of the debt they could incur. What’s more, these programs are often communicated to the employee as mandatory for a job or promotion. Thus, employees are being forced to choose between staying in a job they may not like or cannot afford, or facing this debt, which could be upwards of $20,000. In recent a TikTok, for example, cosmetologist Kacey Kaizer describes her experience with a TRAP at a salon. The TRAP she signed had all the worst elements of these predatory agreements — it did not provide her with any transferrable licenses, she was told it was mandatory, and it made her stay in a job she was “extremely unhappy in” for years as she feared owing a debt of up to $20,000.
Since the 1990s, employees have attempted to challenge these predatory provisions in court, claiming violations of the Fair Labor Standards Act, state statutes, and contract doctrines such as unconscionability and noncompete doctrine. While litigants have had varying success, courts commonly rule for the employer and enforce these TRAPs. Recently, Breann Scally, a former employee of PetSmart, filed a high-profile class action lawsuit against PetSmart in California state court, alleging that their “Grooming Academy” constitutes an unlawful TRAP. At PetSmart, groomers must complete the training program and sign the TRAP, which requires groomers to take on $5,000 in debt to PetSmart for the training, which will be forgiven if the worker remains at their job for two years. The TRAP mandates repayment even if the employee is fired. Scally claimed a violation of California Labor Code §2802(a), which states that “[a]n employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.”
These predatory TRAPS have gotten the attention of the federal and state governments Few states, however, have actually moved to tamp down on the practice and only Connecticut, California, and Colorado have directly addressed the issue. Connecticut’s General Statute §31-51r explicitly prohibits employers from requiring employees to sign agreements to repay training costs if the employee leaves before the passage of a stated period of time; however, perhaps in recognition that the true mischief of these TRAPs is their exploitation of the unequal bargaining power between the employee and employer, the statute was later amended to exempt union-negotiated training repayment programs. California’s law is confined to acute care hospitals. The law, §2801.1, clarifies §2802, and requires that these hospitals reimburse employees for “any expense or cost of any employer-provided or employer-required educational program or training for an employee providing direct patient care or an applicant for direct patient care employment.” Notably, it protects employees and prospective employees. Colorado, on the other hand, explicitly allows TRAPs as an exception to their laws against noncompete agreements.
Federal regulators have also begun taking notice. In September, the Senate Banking Committee held hearings to study TRAPs and other forms of employer-driven debt. Earlier this year, the Consumer Financial Protection Bureau (CFPB) issued a request for information to employed consumers in order to study employer-driven debt products, including TRAPs. Additionally, the Department of Transportation has addressed this practice within the trucking industry, and announced in January that it would be creating a working group with the CFPB and the Department of Labor to create a Truck Leasing Task Force to address these kinds of predatory agreements in truck leases and how they “result in outsized and unanticipated debt for incoming drivers.”
Advocates interested in challenging these TRAPs have analogized these agreements to unenforceable noncompete agreements under state law, an argument which has failed to date. Challenges have also been brought under the FLSA, which requires that wage payments be “free and clear,” prohibiting any “kick-back[s],” or payments, to the employer for the employer’s benefit. As such, plaintiffs have argued that TRAPs are unlawful kick-backs. However, TRAPs have been interpreted by courts as akin to loans or advances, which the FLSA does not prohibit. Despite this, at least one court has recognized the distinction between TRAPs that provide transferrable training from ones that are company-specific in these kick-back cases.
TRAPs also create perverse incentives. Employers that impose TRAPs have less reason to institute positive changes to attract and maintain talent. Instead, they can trap employees through these predatory agreements, impeding worker mobility. And when applied to low-wage jobs, TRAPs only exacerbate the already debilitating unequal bargaining power between employer and employee. Given the clear problems that TRAPs pose, especially to low-wage workers, stronger protections — from both state and federal law — are called for.