Labor, legal groups ask Department of Labor to clarify that such contracts can violate the Fair Labor Standards Act
WASHINGTON, DC — Today, Governing for Impact (GFI), Towards Justice (TJ), the Student Borrower Protection Center (SBPC), the American Economic Liberties Project (AELP), and 16 other organizations sent a letter to the Department of Labor (DOL) urging the agency to clarify that “stay or pay” contracts – in which workers are forced to repay employers if they leave their job within a certain time frame – can violate the Fair Labor Standards Act (FLSA). Stay-or-pay contracts are an increasingly common form of employer-driven debt. They operate as de facto non-compete agreements, and have been shown to reduce workers’ mobility, limit workers’ organizing power, and encourage unsafe working conditions.
“Stay-or-pay policies trap workers in low-wage jobs and unlawfully force them to take on thousands in debt that deprives workers of unconditional minimum wage and overtime pay,” said Rachael Klarman, Executive Director at GFI. “The Fair Labor Standards Act is designed to protect workers from exactly these types of harms, and we urge the Biden Administration to ensure it is enacted as intended.”
“We’re proud of our work fighting around the country with nurses, pilots, pet groomers, physical therapists and so many others challenging the predatory stay-or-pay contracts that keep them trapped in their jobs and shift corporate costs onto workers,” said David Seligman, Executive Director of Towards Justice. “If employers want to retain their workers, they should do so by paying them more and treating them better, not saddling them with debt indenturing them to their bosses. The Biden Administration should do even more to clarify that these coercive contracts violate our most hard-fought labor protections, including the minimum wage laws.”
“Stay-or-pay contracts, including those with Training Repayment Agreement Provisions or TRAPs, reveal an ugly truth about some of the biggest corporations in America: exploiting workers is cheaper and easier than investing in their talent,” said Mike Pierce, Executive Director of the Student Borrower Protection Center. “Fortunately for workers and honest businesses, the Biden Administration has the legal tools necessary to drive stay-or-pay contracts out of the economy.”
“De facto non-compete agreements like stay-or-pay agreements are just another way that employers take advantage of their power over workers, preventing them from leaving for better opportunities,” said Erik Peinert, Research Manager and Editor at Economic Liberties. “The Biden administration has called for a whole of government approach to banning non-competes, and it is critical that the Department of Labor use every authority at its disposal to do so.”
Estimates suggest that stay-or-pay contracts are growing increasingly common in low-wage industries – with serious impacts on worker safety, mobility, and financial security. PetSmart, for example, requires low-wage dog groomers to sign stay-or-pay contracts as part of their hiring process. If workers quit within two years, PetSmart may use debt collectors to pursue up to $5,000 in training costs. Many of the largest trucking companies also require drivers to pay back up to $6,000 for so-called “training” – despite evidence that this training is often conducted in dangerous conditions and provides limited transferable skills. Stay-or-pay contracts are also common in the airline industry: pilots that leave cargo airline company Ameriflight within 18 to 24 months of service can owe the company up to $30,000.
In a letter to the DOL’s Wage and Hour Division (WHD), GFI, TJ, SBPC, AELP, and 16 other organizations requested an Administrator’s Interpretation clarifying how stay-or-pay contracts violate the FLSA. Specifically, the groups argue that stay-or-pay contracts can constitute unlawful “kick-backs” to employers and deprive workers of minimum wage and overtime pay that must be paid “free and clear” of conditions or obligations to repay.
While the Department of Labor is currently pursuing FLSA litigation against particularly egregious stay-or-pay contracts, official agency guidance would put employers on notice and help employees vindicate their rights under the law. Such an interpretation would be well within the authority of the WHD, which has issued numerous similar interpretations to clarify employee rights and obligations under the FLSA.
“We applaud the DOL’s recent actions to combat exploitative stay-or-pay contracts – but there’s more it can do,” said Reed Shaw, Policy Counsel at Governing for Impact. “Without a check on unlawful employer power, stay-or-pay contracts reduce competition in the labor market, trap workers in low-wage jobs, and limit organizing power. We encourage the Department of Labor to clarify FLSA regulations and protect American workers.”
About Governing for ImpactGoverning for Impact (GFI) is a regulatory policy organization dedicated to ensuring the federal government works for working Americans, not corporate lobbyists. The policies we design and the legal insights we develop help increase opportunity for those not historically represented in regulatory policy implementation work: working people. For additional information about GFI, please visit https://governingforimpact.org/.