Navigating “Stay-or-Pay” Clauses in Employment
The use of “stay-or-pay” clauses (also called “training repayment agreements” or “TRAPs”) is increasing across many industries. These clauses are facing growing scrutiny due to their impact on worker mobility, wages, and employees’ ability to change jobs without taking on debt.
What Are “Stay-or-Pay” Clauses?
These clauses appear when an employment contract requires an employee to reimburse certain costs (for example, training, certifications, or related expenses) if they leave the job within a specified period. A typical example:
- The employer pays for training.
- If the employee resigns or is terminated before a certain date, they must repay the cost (in full or prorated).
Historically, these clauses were more common in highly specialized jobs (for example, pilots or engineering), but they have expanded into more common roles, including education, nursing, transportation, and skilled trades.
Why Employers Use Them
Employers often argue that these clauses protect investments in recruiting and training. Some courts have upheld certain repayment agreements under theories such as “loans” or voluntary agreements between parties, depending on the facts and the contract language.[1]
Increased Scrutiny and Criticism: Unique Harm to Employees
In recent years, these clauses have been criticized for:
- Imposing debt as a practical condition of employment
- Reducing job mobility and suppressing wages
- Discouraging employees from leaving even in abusive or unsafe conditions
- Using fine print or terms that may be changed unilaterally
- Creating barriers to promotions and better opportunities
This scrutiny has intensified as agencies and regulators describe these agreements as mechanisms that function in practice as restrictions on employment.
Federal Agency Actions: CFPB and FTC
CFPB: “Employer-Driven Debt” and TRAPs
In June 2023, the Consumer Financial Protection Bureau (CFPB) published a report on employer-driven debt, describing how certain training repayment agreements (TRAPs) can leave workers in debt and limit their ability to change jobs.[2]
FTC: Relationship to Non-Compete Clauses
In January 2023, the FTC proposed a rule to restrict non-compete clauses and noted that certain contract provisions may function as non-competes “in practice.” The FTC identified “stay-or-pay” clauses as a potential example when they require employees to remain in a job or face significant costs.[3]
California’s Approach: Potential Legal Conflicts
In July 2023, California Attorney General Rob Bonta issued a Legal Alert highlighting concerns about these clauses and potential violations of multiple state laws.[4]
Examples of Legal Frameworks Cited in California
- Labor Code § 2802: requires employers to indemnify/reimburse employees for necessary expenses incurred as a direct result of their work. Certain clauses that shift costs to workers may conflict with this duty, depending on the facts.
- Restrictions on “training” repayment: the analysis may depend on whether the training is legally required to practice the profession, whether it was truly voluntary, or whether it was required by the employer.
- Consumer protection laws: for example, the Rosenthal Fair Debt Collection Practices Act and California’s Unfair Competition Law (prohibiting unlawful, unfair, or fraudulent practices), depending on how these amounts are imposed or collected.
The validity and enforceability of these clauses may vary widely depending on the industry, contract language, amount charged, method of collection, and whether the cost represents an expense the employer was legally required to cover.
What Should Employees Do?
Before Accepting a Job
- Read the contract and look for terms such as: “training repayment,” “stay period,” “debt,” “proration,” or “penalty.”
- Identify: total amount, required employment period, whether it applies to resignation or termination, and whether interest or collection costs apply.
- Request copies of attachments, internal policies, and any fine print incorporated by reference.
If You Are Asked to Pay When Leaving a Job
- Keep the contract, emails, invoices, policies, and any collection communications.
- Document whether the “training” was mandatory, occurred during work hours, and was necessary to perform the job.
- Consider speaking with an attorney before signing repayment agreements, accepting deductions, or responding to a lawsuit.
In Matern Law Group, we represent employees and help evaluate whether a “stay-or-pay” clause is enforceable and what options exist when an employer attempts to recover training costs or impose debt.
Sources
- [1] Gordon v. City of Oakland, 627 F.3d 1092 (9th Cir. 2010); Heder v. City of Two Rivers, Wisconsin, 295 F.3d 777 (7th Cir. 2002); USS-Posco Industries v. Case, 244 Cal.App.4th 197 (2016).
- [2] CFPB Report on Employer-Driven Debt
- [3] FTC Non-Compete Clause Rulemaking
- [4] California Attorney General Legal Alert (2023)