For decades, employers in some sectors have included training repayment agreement provisions along with employee contracts. These provisions require workers to repay employers for training costs if they leave the company before a certain time period has passed.
While training repayment agreements first emerged in certain higher-paid skilled professions, like engineering, they've since expanded to more middle- and low-wage work, says Jonathan Harris, associate professor of law at Loyola Law School, Los Angeles. In 2020, almost 10 percent of American workers were covered by a training repayment agreement, according to the Cornell Survey Research Institute.
These agreements usually have two aims: to help workers gain new skills and, more often, to discourage workers from leaving a company too soon, Harris says.
Employee retention is an understandable stressor for companies, says Kate Rigby, partner at the law firm Epstein Becker and Green: "Hiring new employees can be really expensive, especially in this current time where there was a lot of turnover."
But these contracts have recently come under more scrutiny. In January, the Federal Trade Commission proposed a rule to restrict noncompete clauses, including training repayment agreements, as a possible de facto noncompete could "restrict what a worker may do after they leave their job."
This proposed ban is scheduled for a final vote in April 2024. In the meantime, the Consumer Financial Protection Bureau published a report in July on the risks of employer-driven debt, citing TRAPs--as some worker advocates call these agreements--as a common form that could hinder career advancement.
With this increased attention and potential changes on the horizon, here's how employers should approach these agreements:
First, employers need to determine whether or not their training programs, and therefore their repayment provisions, are voluntary or required. If required, then this agreement could be illegal in some circumstances, like in hospitals in California. Employers should therefore be sure to check their state laws, Harris says.
Additionally, business leaders should be careful about how they seek repayment if such an agreement is broken by an employee, Rigby adds. If an employer seeks repayment only when an employee leaves for a competitor, that could trigger a noncompete argument--which, with the proposed rule from the FTC, could become even more fraught.
Thus, "it's best practice to have consistency across your program" for enforcement, Rigby says.
With the potential for legal threats, it's crucial that employers carefully consider the language in these agreements, says Dan Pyne, shareholder and the co-chair of the employment department at the law firm Hopkins and Carley. If an employer decides to make training voluntary, that can make training repayments more enforceable, but clarity is still key. "I would not recommend slapping this together in two paragraphs without a lawyer reviewing it," Pyne says.
Communication counts--not just for legal matters but for employee morale, Pyne says.
If a training program is required, companies should let candidates know about repayment as early as possible--in the first interview or even in the job description, Rigby says: "It also takes away this argument that they didn't know that they had to do it or they felt forced to do it. They took the time to review it in advance of accepting that role."
And if a training program is voluntary, it should actually feel voluntary to employees. When employers come to employees directly to propose this voluntary training, the question of coercion can come into play, Pyne says: "You're telling me I'm free to say no, but really, how free am I to say no? Those are risky situations."
But there are ways to handle this well: For instance, if the employer publicly shares the details of the voluntary offering and the terms of repayment to the team, inviting employees to take part, that's usually well received, he says. Additionally, offering more "portable" and affordable training will help employees see the benefits for themselves as well as for the company, and they'll be more inclined to partake, Rigby adds.
In general, employers should think about how employees will receive the message, Harris says. After all, there's a reason for the unflattering acronym TRAPs. If approached the wrong way, employees might feel stuck and resentful--and their work could falter as a result, defeating the very purpose of this retention effort. "That's probably not the best environment," Harris says.
Additionally, employers should consider which benefits they are hoping to see from this training repayment and determine "whether executing and enforcing the agreements will actually attain those desired results," Rigby says.
There are alternatives to these agreements, Harris adds. For employers concerned about upskilling, but worried about the cost, they might find ways to subsidize training through local and regional government programs, such as workforce development boards.
"There's lots of funding out there for those very programs where the employer is not taking on the financial obligation, but the worker isn't either," Harris says.
And if retention is the foremost concern, there are more effective ways to address employee engagement and satisfaction, Harris argues, looking at "what the concerns of their employees are, and doing their best to address those so that workers actually want to stay."
