Don’t Scare Employees With This Employment TRAP

Are training repayment agreement provisions legal – and worth it? That depends.

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All business owners strive to retain their employees to maintain productive, well-staffed companies. But doesn’t it feel better knowing your employees stay with your company because they want to, not because they have to? Of course it does. However, after experiencing the Great Resignation and a volatile labor market, some employers around the U.S. found a way to TRAP employees into staying with their organizations – by using training repayment agreement provisions (TRAPs).

Although these contracts are intended to help employers recoup costly training expenses if a new employee resigns soon after receiving company-sponsored training, a training repayment agreement can also have negative and scary consequences, like forcing low-wage workers to stay in a role out of financial necessity. Plus, there is an ongoing debate on whether these provisions should even be legal. Below, we break down everything you need to know about this TRAP.

What is a training repayment agreement provision (TRAP)?

A training repayment agreement provision, also referred to as a training agreement, a training reimbursement agreement or a training clawback, is a type of employment contract that asserts an employer will cover the cost for an employee to receive work-related training in exchange for the individual’s continued employment. If the employee leaves the company before a designated time, they are responsible for repaying the business for the cost of their training. TRAP fees and enforcement periods vary by employer, but they typically work on a sliding scale.

“When used appropriately, TRAPs can be a method for employers to provide employees with valuable training and other opportunities while protecting the employer from a situation where the benefit of the training leaves with the employee before the employer receives any benefit,” Tom Spiggle, employment law attorney at The Spiggle Law Firm and author of “Fired? Afraid You Might Be?”, told us.

What’s an example of a TRAP?

To better understand what a TRAP is, consider this example: At (the fictional) Bob’s Cars, the company’s training agreement requires employees to repay $1,000 in training costs unless they remain employed with the organization for at least one year after the completion of training.

If this training agreement uses a sliding scale, it might require an employee to repay 100 percent of the training costs ($1,000) if they quit within the first six months of training completion, 75 percent ($750) if they leave within six to 12 months, and ultimately zero if they stay with the company for more than a year after training completion. This way, the owner of Bob’s Cars is recouping their investment, literally or figuratively, whether the employee quits and pays back the money or puts their new skills to use for the business.

What industries use TRAPs?

TRAPs are becoming more common. About 10 percent of U.S. workers surveyed in 2020 were subject to training repayment agreements, the Cornell Survey Research Institute told Reuters. When TRAPs first came about, they were often used to recoup specialized training costs for higher-skilled and higher-wage workers, such as technology employees and securities brokers.

“The industry that has most commonly used and benefited from TRAPs are high-skilled and high-waged tech employees that require specialized and expensive training,” said Pete Potente, international business attorney and CEO of POTENTE. “The tech industry, similar to other industries that can be defined by the above, benefit immensely from TRAPs because they want to ensure a return on their investment, that being the time and money spent training new employees.

Spiggle also commented on industries using TRAPs, stating that industries like healthcare and finance benefit most from TRAP agreements because employees in these fields can require expensive training.

“This training sometimes leads to portable certifications that an employee can use to find other employment,” said Spiggle. “TRAPs are a way for employers to avoid taking a loss when an employee leaves before a certain time period.”

However, the use of TRAPs has since expanded to low- and moderate-wage industries, including underpaid jobs that are disproportionately held by women, immigrants and people of color.

“Unfortunately, TRAPs are becoming increasingly common in the beauty, trucking and nursing industries; the trainings in these industries are all typically company-specific and non-transferable, making the TRAP predatory,” said Potente.

These fields are often rife with staffing shortages and high employee turnover, and some sectors (e.g., trucking) have notoriously harsh working conditions and low wages. So employers in these industries use TRAPs to entice staffers to stay with their companies: Keep working with us after your cost-free training, or leave and pay us the debt you now owe.

The Bob's Cars example above represents a minimal expense compared to some real-life TRAPs that have been enforced. In USS POSCO Industries v. Floyd Case, an entry-level laborer was responsible for paying back the majority of a $30,000 training reimbursement agreement upon quitting and breaching the contract.

Are TRAPs legal?

Training repayment agreement provisions can be legal, but it all depends on the details of each specific case. Enforceability and repayment obligations often depend on factors like the level of employee, the type of training program attended and the actual cost of training.

When creating a training reimbursement agreement, follow these guidelines to help ensure it’s enforceable. First, ensure the training is valuable and voluntary, create a detailed agreement outlining the requirements and obligations for both parties, and have the employee sign the agreement before starting the training program.

You should also consider how federal, state and local laws, such as minimum wage and overtime laws, could impact the enforceability of your agreement. For example, requiring a low-level employee to pay back an employer could put their income level below minimum wage. Additionally, we recommend consulting with your company’s legal counsel or an employment lawyer before implementing any employment contracts. [Find out why you should hire an attorney for your business.]

It should also be noted that TRAPs are scrutinized by U.S. regulators and lawmakers, many of whom are leaning in favor of financially-stricken employees and questioning whether TRAPs are necessary or fair. This comes on the heels of the recent Federal Trade Commission (FTC) ruling that bans noncompete agreements.

“Lately, regulatory scrutiny has become more intense as states and the federal government have focused on banning non-competes,” said Potente. “While TRAPs have for the most part escaped the radar, they’re now slowly coming into the spotlight and it’s likely that there will be more heavy regulations directed towards TRAPs in the coming years.”

For example, the Federal Trade Commission (FTC) and the National Labor Relations Board (NLRB) have both taken steps to limit the use of TRAPs, viewing them as a “de facto non-compete” that unfairly restricts employees from leaving their jobs. The Consumer Financial Protection Bureau (CFPB) has also issued a report regarding consumer risks due to “employer-driven debt.”

Although no state has outright banned all training repayment agreements, some have enacted regulations to limit their use.

Employers often don't need to try to enforce training repayment agreements since the presence of the agreement alone – and fear of the consequences for breaking it – can make employees stick around.

What are the advantages of using TRAPs?

Although training repayment agreement provisions might sound like sketchy business behavior and their enforceability can vary, there are some solid benefits of incorporating them into your company’s HR policies.

1. Candidate screening. Mentioning TRAPs in your job description can act as a screening measure to ensure only candidates who are seriously interested in your job opening apply and accept the position. Even if an organization never actually goes through with enforcing the repayment agreement, just the possibility of owing thousands of dollars down the line can help weed out candidates who aren’t necessarily serious about the position or your company long term.

If you look at TRAPs from a recruitment and retention perspective, it makes sense. The job market has cooled off since The Great Resignation era, but job-hopping is still common in some industries, and the cost to hire and train an employee isn’t cheap. SHRM‘s 2022 benchmarking data revealed that the average cost per hire is nearly $4,700, although the cost of a bad hire can be three or four times the position’s salary. Using TRAPs may be a cost-effective way of securing quality workers.

According to business.com's research on employee satisfaction, more than 60 percent of currently employed workers are seeking new jobs or will start job searching within the next six months.

1. Recouping costs. Perhaps the most obvious reason why some employers are having workers sign training repayment agreements is to do just that – get repaid for expensive training costs. Training magazine reported that the average cost of training an employee in 2023 was $954 – small businesses pay the most, with average costs of $1,420 per learner. For organizations that want to provide highly specialized or extensive training, that figure can be much higher, and if you’re a company that sees high levels of employee turnover, these expenses can add up quickly.

It’s in your financial interest to try to get your money back if the employee you’ve invested in doesn’t continue providing services for your business, and TRAPs make that possible. The situation can even be seen as a win-win overall – you’ll either get the benefit of employing a newly skilled worker or you’ll be reimbursed for the training you provided them.

1. Retaining workers. It’s arguably fitting that the acronym for a training repayment agreement provision is TRAP because it can often trap employees in their jobs, especially low-level workers who can’t afford to repay training costs. While that is perhaps a sinister spin on these contracts, they can also serve as positive motivators for employees to stick with your company. Some staffers may be genuinely appreciative of the opportunity to receive free training with the comfort of knowing you’re both looking for a long-term employment relationship. [Read related article:Reasons Employees Quit and How to Prevent It]

If an organization is experiencing high turnover and doesn’t want to take measures such as increasing wages or improving working conditions to retain employees, having new workers sign TRAPs could be a tempting solution. However, you don’t want TRAPs to scare away prospective or existing team members, either. The key, then, is presenting the training agreement as a mutually beneficial opportunity and not as, well, a trap. If you do try to use TRAPs to punitively force people into staying with your company, word of your penalty may spread – and tank your business’s reputation among the workforce in the process.

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