Corporations Have Turned to Employer-Driven Debts to Undermine Worker Power
March 21, 2023 | WASHINGTON, D.C. — The U.S. Department of Labor (DOL) filed its first-ever lawsuit against a company for allegedly using a “stay-or-pay” contract that required employees to pay the employer if they leave their job before the end of a contract.
The suit alleges that Advanced Care Staffing, LLC (ACS) and its CEO, Sam Kelin, required employees to stay with the firm for three years or pay the company for “damages” resulting from their exit. Those alleged damages include the company’s “lost profits.” Like most employer-driven debt, such expenses are solely in the employer’s interest and not the employees. Therefore, seeking to recoup those amounts is the same as requiring a worker to illegally kickback their own wages to their former employer, in violation of federal minimum wage laws.
“DOL’s action against predatory stay-or-pay contracts sends a monumental message to employers: obey the law or face repercussions,” said David Seligman, Executive Director of Towards Justice. “A fundamental premise of our labor laws is that employers pay workers, and not the other way around. This lawsuit builds on a multi-agency effort from the Biden Administration to curb coercive contracts that rob workers of bargaining power. We look forward to what’s next.”
“Whether it’s Training Repayment Agreement Provisions (TRAPs) or stay-or-pay contracts, employers are using debt as a tool of coercion to force workers to stay in low-paying, unsafe jobs,” said SBPC senior policy advisor Chris Hicks. “The Biden Administration has been strengthening its whole-of-government approach to ensure workers are able to fully and freely exercise their rights–including their right to depart without the looming threat of debt.”
The DOL’s complaint also alleges that ACS’s contract required employees departing before the mandatory three years to enter into private arbitration, and would require them to pay ACS’ future profits, in addition to attorneys’ fees and arbitration costs. The DOL is also seeking back wages and liquidated damages for affected employees.
Employers across the country are increasingly holding workers hostage in low-paying and substandard working conditions through employer-driven debt. To lock workers into these debts, employers rely on restrictive employment covenants such as the above stay-or-pay contracts and TRAPs.
“Stay-or-pay” employment contracts are an abusive form of employer-driven debt, and similar to TRAPs, serve as de facto non-compete agreements. They require departing employees to compensate for the “cost” of each day that they “fail to provide services”—turning employment contracts into guaranteed profit streams.
The growing use of employer-driven debt to block workers from moving to better jobs is a consumer protection crisis for individual workers, but it is also something broader: a method of unfairly holding back labor market competition. In particular, as stay-or-pay contracts and TRAPs grow more prevalent, they are helping to underpin an industry-wide power imbalance between workers and management across a range of professions.
Read the Department of Labor’s press release: Department of Labor seeks court order to stop Brooklyn staffing agency from demanding employees stay 3 years or repay wages
Read the Department of Labor’s complaint filed in federal court in New York: https://towardsjustice.org/wp-content/uploads/2023/03/DOL-Complaint-Su-v.-Advanced-Care-Staffing-Sam-Klein.pdf
Read SBPC’s 2022 statement about the Consumer Financial Protection Bureau’s public inquiry into employer-driven debt: https://protectborrowers.org/consumer-financial-protection-bureau-launches-first-ever-federal-inquiry-into-employer-driven-debt/
About Student Borrower Protection Center
The Student Borrower Protection Center (SBPC) is a nonprofit organization focused on alleviating the burden of student debt for millions of Americans. The SBPC engages in advocacy, policymaking, and litigation strategy to rein in industry abuses, protect borrowers’ rights, and advance economic opportunity for the next generation of students.
About Towards Justice
Towards Justice is a nonprofit legal organization that uses impact litigation, policy advocacy, and collaboration with workers and worker organizations to build worker power and advance economic justice.