Employer Debt Traps Violate Workers’ Rights, Federal Regulators Say

Bosses that foist debt on new hires, an increasingly common management practice, appear to be violating their workers’ right to organize unions.

According to a report published on July 20 by federal regulators, employment agreements that require workers to pay for training if they quit before an arbitrary deadline have the same effect as another type of legally dubious contract.

The study, released by the Consumer Financial Protection Bureau (CFPB), found a “prevalence” in the labor market of so-called training repayment agreement provisions (TRAPs), which the agency said can be partially explained by companies looking for an alternative to non-compete agreements.

Non-competes have recently “come under regulation and legal scrutiny,” the CFPB noted, for wrongfully restricting worker mobility by aiming to keep rank-and-file employees from working for competitors.

In one instance cited by the CFPB, a roofing trade association overtly urged its members to employ TRAPs because “non-competes for workers in the field were likely to be unenforceable.”

“[R]requiring certification training with a reimbursement requirement could help employers get around the prohibition,” the National Roofing Contractors Association said in 2019.

The CFPB report also found that TRAPs effectively deter employees’ ability to quit, which is protected by the National Labor Relations Act (NLRA) when done in concert with colleagues, according to the agency charged with enforcing the law. The NLRA gives workers the right to unionize, and generally protects their ability to engage in collective action as a bargaining tactic with management.

In May, National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo said that most non-compete agreements are illegal because they undermine workers’ right to “carry out concerted threats to resign or otherwise concertedly resign to secure improved working conditions.” Companies that use TRAPs have seen employee resignations decrease by 15 percent, according to research cited by the CFPB.

The CFPB noted that “it’s difficult to estimate how common TRAPs are across the workforce,” but cited an analysis that showed exponential growth in the use of such agreements in one industry — health care — over the last decade. A nurses union, National Nurses United (NNU), found that 45 percent of members with 10 years of work experience or less have been subjected to the agreements, “as compared to 24.3% of those who have been working between 11-20 years and 9.4% who have been working 21 years or more.”

“These are an insidious form of employer-driven debt whereby [registered nurses] become obligated to pay their employer large sums of money (into the tens of thousands of dollars) if they quit or are fired before a set term, usually 2-4 years,” said NNU legal counsel Nicole Daro, in an email to Truthout.

The union believes that the NLRB could prohibit TRAPs for several reasons, Daro added. The agreements “have a strong chilling effect on employees’ right to engage in protected collective action to improve working conditions,” she said. Daro noted that many include “draconian confidentiality provisions,” which have also been banned by the NLRB “because employees generally have a right to discuss terms and conditions of work.” And all TRAPs effectively resemble non-compete agreements.

“The NLRB General Counsel has already issued a memo setting forth her position that non-compete agreements are unlawful,” she said.

Anastasia Christman, senior policy analyst for the National Employment Law Project, bolstered the argument, saying that the NLRB should be viewing TRAPs as a tactic used to illegally intimidate workers.

“If nurses know that they may be on the hook for thousands of dollars of training costs if separated from their job, it would make them more nervous about engaging in organizing activity,” Christman said.

“The ability to withhold one’s labor is an important part of an organizing campaign,” she added. “That’s the risk employers face if they create a workplace with terrible working conditions.”

When asked for comment on the CFPB’s report, a representative for the NLRB pointed to an agreement signed in March between the two agencies. The memorandum of understanding vowed to “better protect American workers and address practices of employer surveillance, monitoring, data collection, and employer-driven debt, which can include a worker going into debt with their employer for the purchase of equipment, supplies, or required training.”

In an emailed statement to Truthout, the CFPB said that it is “committed to working with other federal, state, and local regulators with relevant jurisdiction, as appropriate, to ensure that the workplace is not a source of potential consumer harm.”

Chris Hicks, a policy adviser with the Student Borrower Protection Center, said that both the CFPB and NLRB should clamp down on TRAPs, and called for other agencies to tackle the issue in a whole-of-government approach.

“The nature of employer-driven debt means that multiple government agencies have jurisdictions. Once an employee departs and the TRAP is enforced, the CFPB has clear jurisdiction to regulate,” he said, citing disclosure laws like the Truth in Lending Act. “When an employee is still employed and has the looming threat of the TRAP overhead, the NLRB has jurisdiction.”

The Department of Health and Human Services could also impose restrictions on the use of TRAPs by hospitals, Hicks noted, if they receive federal funding through Medicare or Medicaid.

David Seligman, an attorney who has fought TRAPs in class-action litigation with the nonprofit Toward Justice, said that a whole-of-government approach would be “consistent with what the CFPB has done over the past couple of years,” since the end of the Trump administration.

In January 2022, for example, the CFPB joined a multi-agency task force on predatory practices in the trucking industry, which includes the Departments of Transportation and Labor. The probe formally launched last month, and will include an examination of TRAPs, And in February, the CFPB and the Federal Trade Commission announced they would be investigating how background checks are affecting renters, “including how the use of criminal and eviction records and algorithms affect tenant screening decisions and may be driving discriminatory outcomes.”

The CFPB has also sought to protect workers by rescinding a Trump-era advisory opinion exempting payday advance companies from the Truth in Lending Act.

“The agency has taken a broad view, not only looking at consumer financial products in the abstract, but seeing how they relate broadly to abuses of power,” Seligman said.

“Collaboration with the NLRB is really important, especially if we see some creative enforcement,” he added. “There’s an opportunity to see something pretty awesome here.”