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Media Domino: A Blog About Student Debt The Nation’s Top Consumer Watchdog Can End Predatory Practices Trapping Workers in Employer-Driven Debt

The Nation’s Top Consumer Watchdog Can End Predatory Practices Trapping Workers in Employer-Driven Debt

By Daniel A. Hanley and Chris Hicks |  December 1, 2021

Stacy Elder, a nurse at Parkland Memorial Hospital in Dallas, Texas, described herself as overworked and depressed. After her supervisor denied her request to transfer to a different unit, she decided her best option was to take a new job at a hospital in Houston. Three years later she received a knock at her door: she was handed court papers informing her that Parkland Memorial Hospital was suing her for $5,000, plus attorney fees that brought her total debt to $6,300.

Jim Simpson was “dead broke” when he saw an advertisement for a trucking school that promised a steady trucking career and a large signing bonus. A month after his training began at CRST International, in which he described “brutal” working conditions that led to other driving trainees getting sick and his instructor quitting, Jim moved on to another job. Immediately after leaving, he began receiving calls from debt collection agencies trying to collect more than $6,000 on behalf of CRST.

Michael Sticka resigned from Boutique Air, a commuter airline, about six months after completing his training with the company. Sticka described Boutique Air as having a “toxic and unsafe” work environment. Nearly a year later, Boutique Air sued him for $13,500, plus interest and court fees. In its suit, Boutique Air claims that Sticka “misled” the company into paying for his training so that he could earn a higher salary with another airline.

These are just a few harrowing stories of a new and troubling trend emerging in workplaces across the country: employers are holding workers hostage in low-paying and substandard working conditions through employer-driven debt. Today, our organizations warned the Consumer Financial Protection Bureau (CFPB) about the risks these arrangements pose for both workers and markets, and called on the federal financial regulator to take immediate action.

Read our letter to the CFPB on employer-driven debt here.

The Growing Threat of Employer-Driven Debt

Firms ranging from hospitals to roofing contractors are harnessing risky and lightly regulated credit products to stifle competition for workers and trap these workers in low-paying, substandard working conditions. And their weapon of choice is “shadow student debt,” or non-traditional forms of credit used to finance higher education and career training. By trapping workers into shadow student debt, employers belie the promise of on-the-job training and ensure that workers will face massive financial consequences if they exercise their right to find work elsewhere.

To lock workers into these debts, employers rely on a restrictive employment covenant called a  “training repayment agreement” (TRA). Often buried deep inside workers’ employment contracts and used as a precondition to taking a job, TRAs require workers who receive on-the-job training—often of dubious quality or necessity—to pay back the “cost” of this training to their employer if they leave their job before an arbitrary, fixed amount of time. 

Although employers argue that these provisions are a useful way to recoup the cost of teaching useful skills to employees who may depart sooner than anticipated, TRAs are instead often used to trap people in bad working conditions and low-paying jobs. In other words, TRAs function as a tax for leaving a job and impose the cost of training on workers.

This trap may sound familiar—TRAs are often structured with this outcome in mind, in an attempt to evade existing state and federal regulatory protections including state-level bans on non-compete clauses

The mere presence of a TRA in an employment contract can be a catastrophe for workers—a danger made obvious by the exorbitant costs that these agreements threaten to impose on workers. The generally thin substance of the “training” offered are arbitrarily determined by the employer and the punitive nature of their invocation can serve as a warning to other workers who may otherwise seek to organize or bargain for better conditions. 

Each of these three factors is present in another story from Kacey Kaizer, a hairstylist from Ohio, who explained on social media that the training repayment agreement she was required to sign as a condition of employment offered no training whatsoever:

As employers increasingly make employer-driven debt a precondition of employment, the chilling effect it has on individual workers’ ability to leave their jobs will continue to cement and exacerbate the industry-wide power imbalances between labor and management across entire industries. 

In fact, observers have noted that TRAs may be even more effective at stopping labor market competition than more traditional non-compete clauses. As Loyola-Marymount Law Professor Jonathan Harris recently put it:

[M]any TRAs can be worse for low-wage workers than noncompetes; that is because preventing workers from working for a competitor may be less onerous to workers than requiring them to pay the employer a substantial sum to quit. TRAs can be especially burdensome for workers in industries accustomed to high turnover, where the average employee would not be expected to stay for the duration of the two-to-three-year TRA repayment period.

The consequences for the labor market and the economy: workers are being transformed into debtors and held hostage in their jobs because they don’t earn enough to cover the cost of quitting.

As TRAs increasingly become a more prominent contractual weapon that corporations use to restrict worker mobility, it’s time for watchdogs and policymakers at every level to take action, protect workers, and hold industry accountable for weaponizing debt as a tool to hold back labor. 


Daniel Hanley is a Senior Legal Analyst at the Open Markets Institute, where he focuses on the relationship between antitrust law and political economy. 

Chris Hicks is a Senior Policy Advisor at the Student Borrower Protection Center, and focuses on the intersection of consumer and worker protections. He joined SBPC from the American Federation of Teachers, where he organized contingent faculty members.

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