All business owners strive to retain their employees to maintain productive, well-staffed companies. But doesn’t it feel better knowing your employees are staying with your company because they want to, not because they have to? Of course it does. But in the wake of the Great Resignation, a tight labor market and recent “quick quitting” trends, some employers around the U.S. have 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 to know about this 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 based on the employer, but they typically work on a sliding scale.
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.
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. 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.
Some industries increasingly reliant on training repayment agreements include health care, transportation, retail and hospitality. 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.
Training repayment agreement provisions can be legal, but it all depends on the details of each specific case. Enforceability and repayment obligations often come down to factors like the level of employee, the type of training program attended and the actual cost of training.
When creating a training reimbursement agreement, there are a few guidelines you should follow to help ensure it’s enforceable. You’ll want to make sure 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 attempting to implement any employment contracts. [Find out why you should hire an attorney for your business.]
It should also be noted that TRAPs are currently being 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. It’s possible that future legislation will govern how these agreements can be executed.
Many times, employers 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.
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.
If you look at TRAPs from a recruitment and retention perspective, it makes sense. Job-hopping has become extremely common as employees have the upper hand in a tight labor market, 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.
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.
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.