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More US Employers Are Trapping Workers in a New Form of Indentured Servitude

Bosses in more industries are preventing workers from quitting by charging them for training costs if they leave.

An employee at Dunkin' Donuts awaits to-go orders at the empty food court of a rest stop on Route 24 North in Bridgewater, Massachusetts, on March 16, 2020.

Bosses in industries such as retail, health care and logistics are reverting to an old tactic and trapping people in miserable jobs by threatening to saddle them with debt if they quit. Workers across the United States in fields ranging from nursing to trucking have been discouraged from leaving jobs they hate or can’t afford to keep because employers vow to charge them for training costs if they quit before an arbitrary deadline.

The threats are backed by so-called Training Repayment Agreement Provisions (TRAPs) in employment contracts. The practice has been likened by critics to indentured servitude and peonage — formerly common types of debt bondage in which a borrower was bound to perform labor for a creditor.

TRAPs have recently come under fire from policymakers because of class action litigation against the pet store chain PetSmart, and reporting on the restrictive covenants from a watchdog group called the Student Borrower Protection Center. Earlier this month, the Senate Banking Committee held hearings examining the agreements and other forms of employer-driven debt. In June, the Consumer Financial Protection Bureau also launched an investigation of employment arrangements that led to workers owing money to their bosses.

Two workers who are being threatened with thousands of dollars in bills through the enforcement of TRAPs appeared before the banking committee on September 7. BreAnn Scally, the lead plaintiff in the class action against PetSmart, told lawmakers about how she was left owing $5,500 to the company for a dog “Grooming Academy” that was initially advertised as free. Registered nurse Cassie Pennings testified about being stuck with $7,500, “more than six months’ rent,” after leaving one hospital job because she was appalled by staffing ratios during the COVID-19 pandemic and didn’t want to be complicit in neglecting patients.

Although the pair came from different industries, they both detailed callous indifference from their ex-managers in response to their grievances. “Despite being one of the most profitable health care systems in the nation, my former employer responded to cries for help from the front line with breakfast burritos and free water bottles,” Pennings said. Scally recalled how one manager told her she could work her way out of debt simply by “upselling” or convincing customers to buy more pet grooming products and services. She said that she upsold $6,000 worth of products but was still charged the full amount for the debt, months after she left the job.

The dollar value attached by each company to the cost of training appeared to have been pulled from thin air. “I thought I was going to get important and valuable training, but it wasn’t anything like that,” Scally said. “I didn’t get any kind of license or accreditation or anything, and my actual training was only a few weeks.” Pennings also told lawmakers that she doubted the $7,500 price tag placed on the cost of her training regimen.

At a second hearing on September 13, one of Scally’s lawyers, David Seligman, told the Senate Banking Committee that TRAPs are used by managers to leave workers “stuck with low pay, dangerous conditions, abusive treatment, or work that does not allow them to advance professionally.” The chair of the committee, Ohio Democrat Sherrod Brown, was unimpressed with the managerial tactic.

“Last I checked, indentured servitude was illegal in the United States. But it looks like some enterprising companies are rebranding it, with these new employment contracts,” Senator Brown said. His office told Truthout that the lawmaker is currently “considering legislation” that would rein in the use of TRAPs by employers, and said he “will work with the [Consumer Financial Protection Bureau] to ensure that consumers are protected from predatory consumer products like TRAPs.”

Indentured servitude was pioneered during the British colonial period to finance the travel of European migrant laborers to North America. Wealthy individuals who paid for the travel were allowed for years to closely control and abuse those who made the voyage. Although the United States technically banned indentured servitude with the abolition of chattel slavery and the ratification of the Thirteenth Amendment, U.S. railroad companies effectively brought Chinese workers over as indentured servants in the postbellum 19th century for five-year contracts with terms that brought the workers “low wages and … substandard living conditions.”

“The law does not permit employers or others to provide a work opportunity in exchange for a worker’s promise to indenture themselves to their employer through debt,” Seligman said. “These sorts of work arrangements harken back to nineteenth century peonage used to subjugate former slaves, and they are precisely the kind of exploitation that our anti-trafficking and peonage laws were designed to prohibit.” Peonage was imposed on former slaves in the southern United States during Reconstruction and the Jim Crow era through sharecropping arrangements and fines levied by racist law enforcement.

Although critics question the legality of TRAPs, a legal analysis published last year found that courts generally uphold the agreements in challenges brought under anti-kickback provisions of the Fair Labor Standards Act, the law establishing a federal minimum wage. However, the author of the study, Loyola Marymount associate law professor Jonathan F. Harris, said another type of legal challenge might prove more successful: courts could refuse to enforce TRAP contract language under the so-called unconscionability doctrine, a legal principle that allows judges to void agreements containing unreasonable terms dictated by a party “with superior bargaining power.” In 2000, the study noted, a federal judge in Manhattan nullified one employment agreement in the financial services industry, ruling that the language of the contract “approaches indentured servitude.”

TRAPs have been commonly used by employers since the 1990s, but they were almost exclusively reserved then for highly specialized workers such as engineers or airline pilots. As markets became increasingly concentrated and union power was diminished by policymakers into the 21st century, bosses used their growing dominance to impose TRAPs on rank-and-file workers, such as “truckers, nurses, mechanics, electricians, salespeople, paramedics, flight attendants, bank workers, repairmen, and social workers,” as Harris’s study detailed. “While such jobs used to be middle class and highly unionized, many workers in these sectors now struggle financially, and unionization levels have dropped,” according to Harris.

In his study, Harris noted that there has been little evidence-based analysis of the agreements and their impact on labor markets but said the use of them is on the rise, and that the vast majority never see any kind of legal scrutiny. “For every [TRAP] that is the subject of a court opinion, tens of thousands remain unchallenged,” he noted. What empirical analysis has been done has shown bosses primarily using TRAPs for “employee immobility” — to obstruct workers from leaving jobs. Harris also found anecdotal evidence from the nursing sector, which showed the restrictive agreements mostly wielded by employers “unable or unwilling to compete on wages and other benefits.”

Payday advances were another type of employer-driven debt examined by the Senate Banking Committee. Seligman highlighted the case of Marriott workers in Philadelphia who became dependent on short-term loans from the company credit union because “scheduling practices made it difficult for them to earn consistent income without getting a second job.” Franchising agreements that misclassify workers as independent contractors can also leave low-wage earners heavily in debt to bosses because of franchising fees, he told the committee.

The Consumer Financial Protection Bureau investigation into employer-driven debt will be examining franchising agreements among other job arrangements that “involve deferred payment to the employer or an associated entity for employer mandated training, equipment, and other expenses.” The agency will also be looking at TRAPs, though it described the arrangements as “Training Repayment Agreements.” There’s also an ongoing bureau investigation of payday advances (so-called “earned wage access” products) which was launched in February.

Whatever the terms used and however the debt originated, employer-driven loans have not proliferated because workers “lack access to credit,” as Seligman told the banking committee, but because workers aren’t paid enough. “And far too many employers seek to shift onto their workers their own costs while undermining their workers’ bargaining power by making it costly for them to seek out jobs where they might be treated better or paid more,” he added.

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