When you accepted that job offer, did you agree to stay or pay?
SPECIAL EDITION
Can your employer trap you into paying thousands of dollars when you quit your job?
Stay or pay: quitting is gonna cost you
It’s already happening. Employees sign agreements to reimburse their company for training expenses if they don’t stick around for a year, two years, or even more. Employers say they need to use these “stay or pay” clauses in employment contracts because jobs are difficult to fill when newly trained hires quit and take their training with them.
The New York Times Magazine (paywall protected) reports that the Federal Trade Commission and the Consumer Financial Protection Bureau are now taking measures to end this widespread indentured-servitude trend. Meanwhile, the costs of training are trapping workers across industries and jobs.
“A typical stay-or-pay clause [in an employment contract] is called a training-repayment-agreement provision (TRAP), which stipulates that the cost of on-the-job training will be borne by the employee.”
Who pays for overhead?
It kinda brings to mind restaurants that now charge their overhead costs to their customers — in the form of surcharges to cover credit card fees. That would have been unheard of 30 years ago. In fact, credit card accounts for merchants once prohibited merchants from passing credit card fees on to users. The use of a credit card was marketed as a benefit, not a cost.
Likewise, training was once held out as a benefit and as a reason to join a company. Today, employers argue they need to impose TRAPs to recover the overhead of employee training. But making workers pay is nothing new. Some employers also try to recover hiring and recruiting costs from departing workers.
Pay to work
Critics contend that training is a business overhead cost and that making employees agree to repay training expenses is similar to requiring restrictive non-compete agreements (NCAs). But NCAs are now illegal in some states and will likely be forbidden everywhere because they interfere with the right to work.
Stay-or-pay clauses used to be limited to just a few industries and high-paying jobs, like airline pilots and software engineers, but are now applied to dog groomers, bank workers, nurses, roofers and truckers. Experts estimate that up to a third of all American workers are now subjected to TRAPs — and, in fact, TRAPs may have become a racket:
“Workers’ rights advocates say that, in many cases, stay-or-pay clauses no longer accurately reflect the company’s costs but instead appear to be inflated financial penalties designed to discourage quitting.”
Ending the stay or pay TRAP
Help may be on the way. It’s no accident that the insidious nature of “stay or pay” leads to comparisons to other questionable methods employers use to control workers.
“Regulators, governmental officials and politicians are starting to take notice of stay-or-pay clauses. The Federal Trade Commission’s proposed ban would include TRAPs that operate like de facto NCAs…Last June, the Consumer Financial Protection Bureau announced an investigation into ‘practices that leave workers indebted to employers,’ indicating that it may use its power as a consumer-debt watchdog to intervene in such cases.”
But the wheels of government turn so slowly that workers subjected to TRAPs continue to be hurt when employers penalize workers for quitting. For now, it’s up to you to avoid funding an employer’s overhead when you quit. Read all job offers, employee policy handbooks, and all associated documents carefully before accepting a new job.
How widespread are TRAPs? Have you ever reimbursed your employer for training because you quit too soon? Would you sign a job offer or contract that included a stay-or-pay clause?
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My answer whether I would sign a contract re TRAP is weaselly, it depends.
If the company is giving me the opportunity to learn a new skill or trade that is very marketable, I probably would sign such an agreement for a modest amount of time as long as the pay for the job was competitive. Otherwise I agree with your characterization of such an arrangement as indenture servitude.
Tangentially, I don’t agree with your characterization of credit card processing fees. The folks that get the benefit of all the cash back and other cc use reward systems should pay for the cost of these schemes. Folks paying with cash should get a break.
Usually there will be NO discounts for cash.
It would depend on the kind of training being provided, how much the training would cost, and the skill/experience level of the employee. An entry-level person who is getting training they would otherwise have to pay for and can then use to base a career on (akin to an apprenticeship) would be different than just regular training one would do as part of a career as new technology or company-specific skills come about.
If the former, and the required time to stay at that job is reasonable, that might not be a bad deal. If the latter then no. Providing training to employees is part of maintaining your workforce.
NO
THAT IS A BUSINESS EXPENSE.
Should you pay for HVAC, restroom, supplires, … ?
It seems to be the new normal: Pass costs and fees to the consumer or employee. If that works, create new fees, pass them on, boost profits. COVID conditioned us to “cover the difference” whether it’s tips, special fees, higher prices. It set a new anchor point. Many merchants and employers are abusing the latitude we gave them. It’s time to push back.
It’s the same tired argument used for noncompetes. Jimmy John’s claimed they provided valuable training for that kid to make Italian sandwiches. A supermarket chain hit their clerks with noncompetes because of that valuable training stacking grapefruits would just go to their competitors.
And hospitals w (still is) notorious for claiming to provide “valuable training” to the doctors who really got their training working like slaves for a University or community medical center.
Funny thing, an East Coast fellowship program, gee this was late 1980’s or early 1990’s, tried to hit their fellows (subspecialty trainee rank above residents) with noncompetes. They had to leave the hospital’s catchment area after training. Their rationale was to stay and compete with the University would steer patients away from the University, and they would not be able to train the next generation of physicians, if current generation stayed in the area and drew patients away from the University.
The University kinda had a point. But organized medicine went ballistic over this, the AMA reared up on its hind legs….I don’t know, sent strongly worded letters or some such, threats were made against accreditation, and the noncompetes were dropped for their Fellows.
And hey, I’m not a lawyer, but I’ve always heard lawyers straight out of law school know a lot of theory, but don’t know anything about the day-to-day nuts-and-bolts reality of litigating a legal case from beginning to end. Seems to me the law firms really do provide valuable training to their new hires. But as you know, there is no Bar Association in the country that allows noncompetes for a newly hired lawyer. The State Bar would sanction any law firm doing so, for the unethical practice of law.
I dream of the day when medicine raises their ethical standards to the level of lawyers.
@Arf: There’s an argument that any training a company provides is good for its entire biz sector, even if employees move around. That’s the big picture view. Training improves the employee pool overall. Sometimes a company “pays more” into the pool, sometimes it benefits from what other companies have paid.
The “logic” employers invoke to justify charging their employees for training is revealed for the B.S. it really is when we suggest employers reimburse a new hire for their college education. After all, the benefits go to the employer, right?
My town really did have the vocational high schools. In eighth grade, I had to make a decision. Academic high, vocational high, or agricultural high school. All had college prep if wanted, no reason why you couldn’t be a carpenter with a college degree. I made that decision, as did my father before me, and they do it to this day. My father ran a garage. He would take the kids out of the high school. Paid them less at first, straight out of school. Not experienced mechanics but didn’t have bad habits yet. He would continue their training and raise pay accordingly. Often the new kids would see the higher pay in nearby big cities and leave. Sometimes they would come back when they saw the pay raise didn’t match the massive increase in cost of living in big city. If he had done a good job, my father would take them back. My father never dreamed of hitting them with a noncompete. Alas, I suspect that model no longer exists.
My view is that it depends.
It has been a classic for airline pilots that have their airline pay for their highest level license and need to repay pro-rata for 2-3 years…
I once had a company pay me an executive education as a sign-on bonus and they added in the contract that I needed to repay pro-rata had I left during the 1st year of service, which I found fair.
On the credit cards fees, here in Europe some merchants asked (or still ask) for a surcharge when paying with a credit card other probably hide them in the overall price.
The worst I had was in Aruba earlier this year where there no taxes if you’d pay in the local currency Aruban guilders, but with a foreign card you can only pay in US Dollars, with up to 7% surcharge.
The practice does not seem completely unreasonable, because there are certainly a subset of people who would take advantage of no-cost transferable training and quickly hop to other jobs. I imagine if that happened even once to a manager, or even if they’d heard anecdotes from other managers, they’d want to protect themselves. It would be highly disruptive, and no-one likes being played for a sucker.
However, the practice obviously leaves plenty of room for abuse, and if it were restricted, companies could find other ways to reduce the risk of freeloading and to encourage employees to stick around.
Those “other ways”, whatever they might be (and you could think of lots of possibilities), would probably be better for productivity and profit than hanging on to employees who want to be gone but are being coerced to stay.
Training is just as much a cost of doing business as are taxes, salaries, utilities, etc. Should a company impose a separate charge to pay for executive or owner bonuses?
LAPD had their hands tied when they did this by CA lefty judges( it was a contract that new PD graduates had to stay for 5 years before transferring to another PD anywhere in the US)
What you are talking about here is really close to the same thing. Technically they were never legal, but then they aren’t expressly prohibited.
I can see where they could be beneficial just like NCA’s and NDA’s. This is part of what you sign in your enlistment packet when you join up, at least it was, now…….well.
Point is all of this NCA’s NDA’s TRAP is all and should be legal, as long as it does not infringe on constitutional (state and federal) or labor and commerce law. Credit card fees should be absorbed by the business. There are several states, including CA that already have laws that state that cc fees can not be charged to the customer, yet it still happens.
Enforcement is what is lacking.
This is why the majority of business don’t do OJT and why people lie on the resume/application about having experience.
Lack of OJT is simple greed and stupidity.
I am a front line manager in a large company. I am also in a state where non-compete agreements are illegal. I am getting another degree for which my company is paying – I entered into the agreement with eyes wide open. If I leave the company, I have to pay 100% for coursework in the past year and 50% for those within the last 2 years but more than one year.
I worked for a company 40 years ago that paid my tuition for my Bachelors degree I was studying for. Full ride, everything for 4 years. 4 months after I graduated I was laid off (along with 950 co-workers). The TRAP was non enforceable because it was their decision to terminate. Read carefully they didn’t
As far as creditcard fees, The prices on the menu were set with the assumption that the credit card fees were built in the price. Next time ask for a cash discount and you will pay the full price with the tip included.
@Eddie: I don’t want to sidetrack on the CC topic, but I started it, right? ;- ) It just makes no sense for a merchant to charge explicitly for CC fees. Just build it into the price. Does my local pharmacy chain charge me to use the restroom? I think it’s built into what’s called “overhead.”
The issues are muddied here in that the pundits are not clear on whether the company is providing “training” – i.e. the grocery store clerk being sent to “cash register school”, or whether an employee REQUESTS tuition reimbursement from a program benefit being offered by the company to all employees. I worked for several companies with tuition reimbursement programs and they all agreed that as long as the program (usually a higher education level program degree that peripherally applied as “relevant to your current duties”} would be reimbursed as long as you made grades (generally a “B’ or better) and that you stayed after the degree for a time period (2 years was common.) An accountant getting a master’s in Finance was approved; an HR rep getting a PhD in mathematics because they liked math was not. I myself got an MBA in marketing as a physician in Pharma because my duties required interacting with the Sales side extensively. And I stayed the 2 years, no worries.
But you had to stay the two years after or pay a prorated payback. If the person got the degree then found a better job because of it, they had to pay if they tried to leave. My own admin got their BA degree and then gave notice, coming to me distraught that the company wanted their money back and she did not have it. I told her it was clearly spelled out in the docs she signed – she tried to go the discrimination route and lost spectacularly, adding hers and the companies lawyers fees to the tuition costs.
The person receiving mandatory training necessary for their jobs and dictated by management as a REQUIREMENT of their jobs however should not be held hostage to payback – in this I agree that it is unconscionable to claw back the costs.
@Hank: This is why it’s crucial for the job seeker to request and review ALL documents whose terms will bind the employee while they work at a company. It’s unwise to agree to something but assume, “Nah, they’ll never enforce this.” Assume all terms will be enforced and negotiate accordingly.
Everyone should read this:
https://www.asktheheadhunter.com/14762/employment-contracts
And this:
https://www.asktheheadhunter.com/7499/employers-shouldnt-keep-secrets-from-job-applicants
Notice. So very many shills for company policies. There is another name for that. P-mp.
No one addresses the major benefits the employer receives from enthusiastic, far better trained better achieving and more profitable employees!
PLEASE NOTE
Do you have a contract with stay-or-pay provisions that you can share with Ask The Headhunter? We will review to help us better understand how employers use such agreements, and report in a future column. Sorry, but we cannot provide legal advice! Please e-mail to nick@asktheheadhunter.com. Feel free to redact identifying information. Thanks!
There seems to have been a shift in employer-employee interactions than in past years. When I started working, companies willingly trained for the position. How else would someone know how to do the work correctly without training? I think that holds true for seasoned people too. Every company performs work differently so training is necessary.
If training for new skill sets, and most companies do not do that now, that requires an input of time and resources. When people used to stay with a company for most of their working life, I think companies were willing to do the training necessary knowing it paid off. Then, in an effort to “reduce costs” companies laid off significant portions of their workforce. People who had been with a company 25 or more years found themselves unemployed. In my opinion, when the corporate mindset of cost cutting set in, people found they were not valued so employees started moving from job to job in an effort to make more money and gain more skills. If you were laid off, at least you had more skills and experience to offer another employer.
Now, employers complain because people do not want to stay in jobs more than 2 years.
Sorry corporate America, but you cannot expect loyalty and people with lots of skills and experience so you don’t have to train, if you consider your workforce disposable. The loyalty door swings both ways–employers forgot that and now it has come back to haunt them.
Back in the day, Lockheed, a leading aerospace company, paid tuition refund. But only 10% used it.
I was discussing this with an HR consultant. His observations:
Not many employees use it.
Companies honor this benefit grudgingly (personally, “allocation has been used up for the year” has happened to me more than being permitted to use it).
The benefit of forcing an employee to stay with a company for a year is, at best, questionable.
I wonder what these employers would do if an employee died before they got the return on their “investment” in training? Would they make his widow pay them back? Would they sue his estate for the money?
I’m old enough to remember a time when employers viewed training employees, be they new hires in lower-level jobs or more experienced hires for more senior positions, as an investment in both the employees AND in the business. Training people was considered part of the cost (money and time) of doing business. Now they want the employees to bear the cost of training.
I get it that it is expensive to train people only to have them leave for better opportunities. Then why not create those better opportunities so people will stay in their jobs? Why not provide opportunities for advancement?
There’s a story of two executives one bemoaning the cost of training people, only to have them leave. Then other one begins to think, and says “Suppose we don’t train anyone, and they stay?” How does that help the company and their bottom line?
As for the whole credit card thing, yeah, lots of stores now charge the customer who uses the credit card a “processing fee”. Same goes for doctors’ and dentists’ offices, to the point that my dentist offers a 10% discount if patients pay with cash or a check.
It sounds like if there’s a way to make money off people, they’ll do it. That means fees for everything that used to be provided as part of the cost of doing business or providing services. Earlier this week there was an article in the NY Times about all of the fees that assisted living centers are adding on (it feels like one big scam to wrest as much money out of you as possible, without providing any better service). So this week’s Q&A seems to be more of the same. Employers, if they have to train you, expect you to be an indentured servant for whatever term they set. I think that’s really bad.
Noncompetes have been null and void in California for about 150 years.
CFO – “What if train our people and they leave?”
CEO – what if don’t train our people, and they stay?
:D
Apologies for ghosting MaryBeth upthread