Ban Would Restore Key Rights to Millions of Workers and Set Stage for Protections Against Employer-Driven Debt TRAPs
January 5, 2023 | WASHINGTON, D.C. — After years of outcry from workers, labor unions, consumer advocates, and other experts about the harms of coercive employment contracts, the Federal Trade Commission (FTC) proposed a sweeping rule to ban all non-compete clauses today—delivering a massive win for workers across the country.
Included in the proposed rule is a prohibition on de facto non-compete clauses, such as Training Repayment Agreement Provisions (TRAPs). The rule would ban employers from using TRAPs to charge departing employees for training costs that “is not reasonably related to the costs the employer incurred for training the worker.” As shown by past SBPC investigations and academic research, if workers bound by a TRAP attempt to leave their job, the cost that they will be on the hook for can be—and often is—arbitrarily made up by the employer.
“By banning all coercive non-compete clauses, the FTC stands to restore power to workers seized by monopolistic corporations and predatory employers and protect tens of millions in low-paying and dangerous jobs. This is a long time coming and a milestone for all working people,” said SBPC Senior Policy Advisor Chris Hicks. “We’ve already seen how employers hell-bent on grifting workers to make a fast buck have turned to TRAPs when traditional non-competes have come under scrutiny. We applaud the FTC and Chair Kahn for taking aim at all coercive contracts that have the same effect, including TRAPs.”
Where non-competes force workers to stay in low-wage jobs by cutting off other employment opportunities, TRAPs accomplish the same by driving workers into debt for required job training and education. If workers stuck in a TRAP try to leave a job early, employers can threaten them with sky-high interest rates on “training” money owed and other financial harm.
“The FTC’s proposal to ban non-compete clauses and functionally similar contracts like TRAPs is an enormous boon to workers all across the United States,” said Open Markets Institute Legal Director Sandeep Vaheesan. “For far too long, employers have used these coercive contracts to unfairly restrict job market mobility for millions of workers and, as a result, depressed wages, reduced the creation of new businesses, and prevented workers from leaving abusive and discriminatory workplaces. Banning all non-competes will increase worker power and mobility and result in a more dynamic economy for everyone.”
TRAPs have become more prominent in use by major employers, which often control a large market share of their respective industry, affecting millions of workers every day. Although employers argue that these provisions are a way to recoup the cost of teaching useful skills to employees who may depart sooner than anticipated, TRAPs are instead often used to hold people in poor working environments and low-paying jobs. In other words, TRAPs function in the real world as a penalty for leaving a job. And, even if the TRAP is not enforced, its presence has the power to accomplish the intended consequence of pressuring workers into staying.
“It is thrilling that the FTC has included TRAPs in its proposed rule,” said Jonathan Harris, SBPC Student Loan Justice Fellow and Associate Professor at LMU Loyola Law School Los Angeles. “The agency is taking bold action to protect workers today. As a next step, the FTC should clarify the proposed rule’s requirement that repayment amounts be ‘reasonably related’ to employers’ actual training expenses. This will ensure that workers receive all the protections that the FTC is hoping to put in place.”
Background
This FTC proposal to ban non-competes comes after many years of advocacy and calls for action. In July 2021, President Biden signed an executive order on competition that advised the FTC to take action against non-competes. Advocates, including the Student Borrower Protection Center, have sent multiple petitions and letters to the FTC urging the agency to ban non-competes.
Meanwhile, a growing body of evidence indicates that employers nationwide are increasingly using a new de-facto non-compete called Training Repayment Agreement Provisions (TRAPs) to hold workers hostage in bad jobs. TRAPs turn workers into debtors via “shadow” student debt acquired from forced on-the-job education and training.
Tucked into long and confusing employment contracts, TRAPs stipulate that an employer can demand repayment for the so-called cost of job training when a worker attempts to quit before an arbitrary date, chosen by the employer. The “training” in question can range from preparation for a recognized credential to extremely basic and firm-specific orientation programs.
Earlier this year, a former PetSmart pet groomer filed a groundbreaking class action lawsuit against the retail pet supply giant, alleging that the firm is engaged in a scheme to trap trainee pet groomers in their low-wage jobs by levying thousands of dollars in abusive and unenforceable debts against them. The lawsuit alleges that PetSmart uses a TRAP to limit groomers from seeking out better working conditions, locking low-wage workers for years into high-volume groomer jobs that can be grueling and dangerous. For groomers who quit within two years of training, PetSmart may use debt collectors to pursue them for training debts that can total more than $5,000.
Just like non-competes, TRAPs impose significant financial burdens on workers and foster monopsony in labor markets by reducing worker mobility and bargaining power.
Further Reading
- SBPC report on TRAPs: Trapped at Work: How Big Business Uses Student Debt to Restrict Worker Mobility
- Lawsuit against PetSmart for its use of TRAPs: Scally v. PetSmart
- SBPC blog on TRAPs: “Student Debt In Disguise: How Employers are Using Predatory Debt to Hurt Workers and Hold Back Competition”
- Open Markets Institute and SBPC joint blog on TRAPs: “The Nation’s Top Consumer Watchdog Can End Predatory Practices Trapping Workers in Employer-Driven Debt”
- Open Markets Institute and SBPC joint letter to the CFPB on TRAPs: Protecting Workers Against Predatory Employer Loans
- Professor Harris’s article on TRAPs: Unconscionability in Contracting for Worker Training
For more background on Training Repayment Agreement Provisions, see here.
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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.
Learn more at protectborrowers.org or follow SBPC on Twitter @theSBPC.