The FTC’s Proposed Noncompete Ban Still Lets Companies Trap Workers in Bad Jobs

Jessica Van Briggle was excited to begin her career as a nurse when she applied to work at Centinela Hospital in southern California. Centinela sent her to a staffing agency to complete the hiring process, and the agency’s representative told Van Briggle she had to work for the staffing agency (not the hospital) for two years or pay $15,000 if she left early. This amount was agreed to by the staffing agency — Van Briggle’s official employer — and Centinela as the cost of the hospital’s eight-week training and orientation. Worker advocates befittingly call these contracts Training Repayment Agreement Provisions (TRAPs).

Van Briggle began the training with two weeks of classroom time, followed by orientation. There were immediate warning signs: Van Briggle’s preceptor was also a new nurse and Van Briggle’s supervisor often assigned her to independently care for patients in demanding units. Feeling that conditions at Centinela were unsafe for patients, Van Briggle often skipped breaks.

Dangerously low staffing levels, ethical concerns and her fatigue from the job caused Van Briggle to email the staffing agency representative about ending her contract early. She was told she would have to pay the entire $15,000 if she left. Van Briggle felt trapped in her job because she couldn’t afford to pay the debt, so she endured the bad working conditions through the end of the contract. Meanwhile, she obtained her Bachelor’s of nursing degree at her own cost. It was that degree — not the so-called “training” she received at Centinela — that allowed her to get a better job.

Van Briggle’s experience is not unique; it is a growing problem that has accelerated due to pandemic-related labor shortages. Major employers rely upon TRAPs in segments of the U.S. labor market that collectively employ more than a third of all private sector workers. Within nursing it is even worse, with almost half of all new nurses signing a TRAP according to one survey. These provisions have become especially common in high-demand sectors like transportation, health care, retail and finance.

Moreover, research shows that employers actually admit that they use TRAPs primarily to keep workers from leaving their jobs, rather than to recover costs for providing useful general skills training to workers. In fact, some companies promote TRAPs as workarounds to traditional noncompetes for employers that want to prevent workers from quitting but are concerned about the enforceability of noncompetes.

Fortunately, the Federal Trade Commission (FTC) has taken a stand against contracts that restrict workers’ ability to change jobs. Its January 5, 2023, Notice of Proposed Rulemaking would ban all noncompete agreements, as well as certain “de facto” noncompetes like TRAPs “where the required payment is not reasonably related to the costs the employer incurred for training the worker.”

Unfortunately for workers, however, the FTC’s proposed rule leaves a gaping loophole that will encourage employers to simply switch from traditional noncompetes to TRAPs. Employers can easily fabricate a justification for their training, as demonstrated in Van Briggle’s case. Her TRAP would likely be permitted under the FTC’s current language because her employer — the staffing agency — would correctly claim that it owed Centinela $15,000 for training Van Briggle under the two companies’ agreement.

Nevertheless, the training was of little value to Van Briggle, discouraged workers from improving working conditions, and economically locked Van Briggle into the job. If TRAPs proliferate due to this loophole, we can expect more stories like Van Briggle’s. TRAPs are often more harmful than traditional noncompetes. Because TRAPs force workers to pay even if they do not work for a competitor, many workers could actually be worse off than under traditional noncompete agreements.

The Chamber of Commerce has argued that traditional noncompetes and TRAPs are necessary to encourage investment in training. Even if this were true, however, the FTC concluded that banning noncompetes ultimately provides a net benefit for workers and society. Likewise, with TRAPs, some express concerns that banning TRAPs would discourage training investment. For many decades, however, companies viewed on-the-job training costs as simply a cost of doing business. It was not until the last few decades that employers began offloading training costs onto workers by requiring more applicants to hold college degrees and by paying subminimum wages, or no wages, during training periods. TRAPs are just the latest version of this cost offloading.

Legal advocates have argued for a broad application of both competition law and consumer protection law on behalf of workers. The FTC — primarily seen as a competition and consumer protection agency — has taken a step in that direction by proposing this rule under its competition authority. But the step will only be completely effective if the FTC closes the TRAP loophole.