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Category Archives: Non-Compete Agreements

Avoiding the Legal Snare: The Perils of Training Repayment Agreement Provisions (TRAPs)

 

Employers are increasingly using Training Repayment Agreement Provisions (TRAPs) to replace other restrictive covenants such as noncompetes and nonsoliciation agreements. But TRAPs can be even more restrictive—and more exploitative—than noncompetes.  In this article, we’ll explain what a TRAP is and how to avoid getting caught in one.

What is a TRAP?

TRAPs, also known as Training Repayment Agreement Provisions, are contractual terms that employees sign when they are hired. While the wording may vary, a TRAP requires an employee to work for a certain period of time. If the employee separates from service prior to that timeframe (whether they quit or are fired), the employee has to pay back the employer’s training costs, the costs of buying or renting equipment, or the costs of replacing the employee.  Sometimes those fees are prorated depending on how long the employee has worked.

How TRAPs Hurt Employees

TRAPs can be very misleading. Often they don’t state how much the employee will have to pay back, or they don’t disclose interest accrual rates or other information a person would usually be entitled to when entering an agreement that might affect their credit. Sometimes the “training” that an employee is expected to pay for is just the orientation or legally-required videos. Sometimes the fees for such “training” are outrageous – we’ve seen TRAP fees ranging anywhere from $5,000 to $50,000. Some TRAPs accrue interest so fast there is no way an employee will ever repay it. And TRAPs usually don’t provide any exceptions in situations where, the employee quits for reasons beyond their control – like sexual harassment, disability, or lousy working conditions.

A TRAP can reduce an employee’s pay below minimum wage. It can destroy an employee’s credit. Worse, employers use TRAPs as a threat: don’t leave this job or we’ll sue you, destroy your credit, report you to immigration, and make it so you can never find another job. There’s a word for this, and it was outlawed by the 13th Amendment to the United States Constitution. 😡 😡 😡

How To Spot A TRAP

TRAPs are often hidden in piles of onboarding paperwork, so employees might not even realize they’ve signed one. They are commonly used in nursing, trucking, and service industries, but we’ve also seen them in child care and professional contexts.

The only way to know if your employer is trying to get you to sign a TRAP is to read everything before signing. This can be difficult. People get trapped into TRAPs because they are so desperate for a job that they’ll sign anything. But that’s the trap. Employers may be counting on you to sign because you just need the money, and they may pressure you to sign by acting like the job won’t be there if you take your time.

What To Do When You See A TRAP

GET LEGAL ADVICE. TRAPs are illegal in some, but by no means all, jurisdictions—there’s no way to know without consulting an employment law attorney in your area. Legal or not, if someone is pressuring you to sign a document without having an attorney review it, that’s a sign you probably shouldn’t be signing the document. No job is worth your freedom.

What’s Going On With Non-Compete Agreements?

 

            You may have heard about the Federal Trade Commission’s Final Rule banning non-compete clauses, which issued on April 23, 2024. What does that mean for workers two months later? So far…well, read on.

            What is a non-compete? A non-compete (or noncompete, depending on who is spelling it) is a form of restrictive covenant, which is a way of restricting activity after a transaction or legal relationship has ended. The most basic form of a non-compete prohibits an employee at Company A from going to work for Company B for a period of time after the employee no longer works for Company A.

            Yes, you read that right. Company A wants to control the employee after the employee no longer works for, and is no longer paid by, Company A. Simply put, if a worker is unhappy in the job and wants to move on to a better opportunity, a non-compete stops that from happening. Workers who violate these clauses can face hundreds of thousands of dollars in liquidated damages, injunctive relief, attorneys’ fees, and the total destruction of their careers.

If this seems perverse to you, join the club. As long ago as 2016, the New York State Attorney General reached an agreement with Jimmy John’s, following an investigation into the sandwich company’s practice of distributing two-year non-competes to sandwich makers. The AG put a stop to the practice, observing that these things “…limit mobility and opportunity for vulnerable workers and bully them into staying with the threat of being sued.” The New York State AG’s efforts notwithstanding, non-competes continue to be used to limit worker mobility in a variety of industries.

            Is that even legal? Here’s what happens. Say a worker gets a job at a sandwich shop. On the worker’s first day, there’s something called “orientation” or “onboarding” or “training.” During this process, the worker has to sign a dozen or so documents, such as W-4s, I-9s, acknowledgments, etc. One of those documents might be some kind of restrictive covenant. The employee may not even know they signed it. And the employee does not have a choice in the matter: no signature, no job. So the employee signs so they can hurry up and get to the sandwich-making.

Officially, while most employment documents have been deemed by the courts not to be  binding contracts, historically, non-competes have been held to be enforceable because, so the logic goes, in return for providing the worker the sumptuous privilege of being paid to make sandwiches, the employer is entitled to extract several years of the employee’s life force. According to the traditional legal analysis, it’s a bargain. And unless a statute specifies otherwise, parties can usually bargain away their own rights, which is why it’s a darn good idea to have an attorney review things before you sign them.

            Realistically, the employee has gotten no opportunity to bargain. The employee needs that sandwich-making job to make their car payment and will sign anything to get that paycheck. Sure it’s a contract. It’s also patently unfair.

            What happened?  The FTC, after several months of gathering commentary, concluded that non-competes are…well…non-competitive. The FTC doesn’t like stuff that interferes with competition. Hence the rule. (This paragraph is a very watered down version of the 570-page rule. Check out pages 11-14 for some real-life examples of how destructive a non-compete can really be.)

            Where are we now? First of all, the rule doesn’t become effective until 120 days after it’s published in the Federal Register, which means even if no one hated this rule it wouldn’t go into effect until around September 10.

            Second, employers couldn’t move fast enough to take the FTC to court. An accounting firm beat everyone else with Ryan, LCC v. Federal Trade Commission, pending in the Northern District of Texas. The Chamber of Commerce (which, by the way, couldn’t name any employers who were actually hurt by the rule) filed its own case in the Eastern District of Texas but lost out because Ryan got there first. But the COC is being allowed to join the Ryan case, so that’s nice for employers.

            Where this leaves the rest of us is that, while we don’t have any crystal balls, decisions coming out of Texas courts recently have not been overwhelmingly progressive. On the other hand, even rich people are sometimes annoyed by non-competes. But then again, employers are already figuring out work-arounds…so don’t pop open the workers’ rights champagne just yet. But go ahead and leave it in the fridge door; we might end up having a use for it in a couple months!

            Who knows what will happen between now and September, so if you’re wondering what this means for your particular situation, make sure you speak with a workers’ rights attorney in your jurisdiction. Fingers crossed.

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