Pay Thousands to Quit Your Job? Some Employers Say So.

Benzor Shem Vidal started caring for his nonverbal autistic brother when he was 12. Vidal’s parents, who lived with the two boys in a small house in steamy Cebu City in the Philippines, didn’t have the money to send his brother to special-education classes, so when Vidal came home from school each day, he would find his brother mumbling to himself in the living room. Vidal would prepare him some food, making sure that he drank water between bites so he wouldn’t choke. Vidal went to nursing school and graduated second in his class, perhaps because he already had a decade of informal experience. When his mother died in 2020, Vidal’s father became his brother’s sole caretaker, leaving Vidal to be the wage-earner for the family. He needed to make more money. So last year, at 26, Vidal moved to America to work at a nursing home in Brooklyn.

Listen to This Article

Open this article in the New York Times Audio app on iOS.

According to Vidal, Advanced Care Staffing (A.C.S.), the staffing agency that hired him, promised he would be responsible for 20 to 30 patients, but the reality was more than 40, leading to a dangerous and unmanageable workload. On two occasions, he was the only nurse on his floor, responsible for upward of 80 patients. Some days he would wheel an oxygen tank into the room of a patient who was struggling for breath and begin administering lifesaving oxygen, only to hear another patient screaming in pain and drilling the call button. “I’m just by myself,” he said to me, trying to explain his feeling of helplessness at the time. “I cannot split myself.” Vidal was so busy he rarely had 10 minutes to rush to the kitchen to microwave his lunch. He was terrified that someone would get hurt and he would lose his nursing license, probably the most valuable thing he possessed. He started to get headaches — to feel sick and exhausted all the time. Fourteen weeks after starting the job, he told A.C.S. he wanted to quit.

Before moving to the United States, Vidal had signed a contract stipulating that, if he quit or got fired within three years, he would owe A.C.S. an unspecified amount of money to compensate the company for damages. Soon enough, Vidal received an email from a law firm representing A.C.S., warning him that if he quit his job, he could owe the company $20,000 or more. The company argued that their damages included the cost of finding a replacement, which the lawyers estimated could mean $9,000 for each year remaining on his three-year contract. On top of all that, they informed him that his case would be referred to private arbitration, and if Vidal lost he would be responsible for the cost of the arbitration and the legal fees of the company, not to mention the cost of his own lawyer. (A.C.S. did not respond to a request for comment.)

This type of contract provision is known as a “stay or pay” clause, and it used to be common only for certain high-paying roles or in certain specialized industries. For airline pilots and software engineers, for example, it has been a longstanding practice at some companies to require employees to stay at their jobs for a defined period of time in order to recoup costs related to hiring and training. But the line between recouping costs and penalizing workers for leaving can be blurry, and companies have increasingly taken advantage of that ambiguity. Workers’ rights advocates say that, in many cases, stay-or-pay clauses no longer accurately reflect the company’s costs but instead appear to be inflated financial penalties designed to discourage quitting.

The use of stay-or-pay clauses has grown rapidly over the past decade, and it has seemingly exploded since the start of the pandemic, as companies try to retain workers in a tight labor market. The clauses have spread far beyond the handful of roles and industries where they originated and are now used by thousands of mid- and low-wage employers — something that came to light when workers began filing lawsuits challenging the practice. These contract terms have been applied to bank workers, salespeople, dog groomers, police officers, aestheticians, firefighters, mechanics, nurses, federal employees, electricians, roofers, social workers, paramedics, truckers, mortgage brokers, teachers and metal polishers. Legal experts believe stay-or-pay clauses might now be in industries that employ a third of all American workers.

Vidal found his way to a law firm called Towards Justice, based in Denver, that has become something of a clearinghouse for litigation surrounding stay-or-pay clauses. David Seligman, the executive director of Towards Justice, told me that when he first learned of Vidal’s case, it shocked him in its audacity. Stay-or-pay clauses are often limited to penalties of a few thousand dollars, not tens of thousands of dollars. To him, it sounded as if Vidal’s contract violated the law in at least two ways. First, A.C.S.’s contract seemed to run afoul of minimum-wage protections, which expressly prohibit companies from requiring any repayment that would, in effect, lower the employee’s wage below the minimum. Seligman also thought that the agreement might violate labor-trafficking law, which protects people from being forced or coerced into work. If a company is using the threat of serious harm — in this case, sizable debt — to retain employees, Seligman argues, the employment relationship is legally coercive.

The cost of hiring and training workers used to be shared by employers, unions and the federal government. For much of the 20th century, the government ran technical schools and subsidized training programs, among other educational initiatives, and unions operated hiring halls where they trained workers before sending them out to jobs. In this environment, in which labor costs were shared, the use of stay-or-pay clauses was limited. But as government investment dried up and union density began to drop — to around 10 percent today from a peak of about 30 percent of the work force in the 1940s and ’50s — employers began searching for mechanisms that would allow them to pass those costs to their employees.

Mandating a financial penalty if a contract is broken, as in Vidal’s case, has a long history in contract law, but it is relatively new in employment contracts. In the early 1970s, the U.S. Court of Appeals for the First Circuit noted that companies providing “specialized training” to their employees could require reimbursement “if the employee should quit before the employer achieves any benefit.” But the court emphasized that the penalty should be closely tied to the cost of the training. “The employer may not require its ex-employee to make payments to it unrelated to the employer’s damage,” the judges wrote, “simply as a penalty to discourage or punish a job change.”

Seligman told me that when he saw his firm’s first case of stay-or-pay in about 2016, it was the concept of “worker as debtor” that he found “remarkably concerning.” Vidal’s case was unusual because it was an unspecified fee for quitting rather than a fixed amount tied to training costs. A typical stay-or-pay clause is called a training-repayment-agreement provision (TRAP), which stipulates that the cost of on-the-job training will be borne by the employee. If a company pays for a transferable credential, like an M.B.A. or a master’s degree in computer programming, it might make sense to require the employee to stay for a set amount of time. But too often the training is little more than orientation and provides no transferable credentials, according to many workers I talked to in the course of reporting this article.

Though it’s hard to trace the spread of TRAPs, a 2022 letter from the National Employment Law Project points the finger at private-equity firms. Private-equity firms not only tend to replicate contract terms across their suite of businesses, but they have increasingly purchased companies that provide employee training, giving them an added incentive to use TRAPs.

“Not a month goes by that I don’t hear about a new industry that is using TRAPs,” says Jonathan Harris, a law professor at Loyola Marymount in Los Angeles, who studies these agreements. Nevertheless, Harris says, it’s hard to know how many workers are subject to these contracts, because employment contracts are often private. Based on his research, Harris believes it is safe to assume that in every industry in which there has been litigation involving one worker, stay-or-pay clauses are present in the contracts of thousands of others, because of the way businesses tend to copy one another. Hospitals with no relationship to one another have used nearly verbatim language in their contracts, according to Harris, and it’s easy enough to find, say, a blog for owners of roofing companies with advice on how to implement TRAPs. Because stay-or-pay clauses are so common in industries that employ about a third of the entire American work force — health care, transportation and technology — Harris estimates that millions of people might be subject to them.

Kate Fredericks, a 38-year-old pilot from Massachusetts, knows the issues with TRAPs well. After years working as a teacher, she decided to switch careers and follow her father into the airline business. In early 2020, she secured an offer to be a passenger pilot, but the pandemic grounded air travel and her offer evaporated. She had to wait tables for a while but eventually got an offer with Ameriflight, a Texas-based cargo carrier. Ameriflight is a cargo feeder airline; while U.P.S. and FedEx have routes around the country, they still rely on smaller carriers to fly the connecting routes from, say, Lansing to Detroit. The pilots for the feeder airlines are the unseen backbone of the package-delivery supply chain, often flying decommissioned passenger planes on contract. Fredericks moved to Puerto Rico and took a job with Ameriflight. She signed a contract that required her to pay back $20,000 in training if she left within 18 months, training that Ameriflight is required by law to provide in order to stay in operation. Many carriers do not charge pilots for this training. Fredericks thought the pandemic would last at least three years, so it probably wouldn’t matter. She signed.

The airline industry recovered faster than expected, and Fredericks found a new job with a passenger airline that had better hours and almost triple the pay. She tried to negotiate the amount of her repayment, but the company wouldn’t budge. Not wanting to jeopardize her stellar credit, she decided to set up a payment plan to pay the debt back without going to collections. “I’ll be paying for my job at Ameriflight for the next seven years,” she told me. In January, however, Fredericks initiated a class-action lawsuit against Ameriflight, and the company has paused her repayments while the case is pending. (Ameriflight did not respond to a request for comment.)

The impacts of TRAPs can be seen most clearly in an industry that has made use of all kinds of stay-or-pay clauses: trucking. Falyssa Mayhew was working at Pizza Hut in Lawton, Okla., in 2018 when she heard about an opportunity to make $80,000 driving big rigs. Mayhew, 36, was an avowed car lover, and driving trucks felt as if it could be a good career. A Greyhound bus soon whisked her to Salt Lake City for training sponsored by C.R. England, a trucking company, and in three weeks she had her commercial driver’s license.

The contract Mayhew signed required her to work for one year at a reduced rate doing “team driving.” Mayhew says one of her trainers was inexperienced and sexually harassed her; another trainee tried to grope her in the hallway of a hotel. She reported the latter incident to C.R. England, and when the company didn’t take action, she decided to quit. Months later, she learned that the company was billing her $6,000 for the cost of her training and had sent the debt to collections. Mayhew lodged a complaint against the collections agency with the Consumer Financial Protection Bureau, arguing that she should not be punished for leaving a company that jeopardized her safety. In responding to the complaint, the collections agency said that they asked C.R. England for a copy of the agreement, but the company did not provide it. In the end, Mayhew’s debt was erased. (C.R. England did not respond to a request for comment.)

Big companies are not the only businesses using stay-or-pay clauses. They’re cropping up in many places you might not expect, like your locally-owned salon. Simran Bal, a 26-year-old woman from Washington State, graduated from aesthetician school in 2021 knowing that it could be hard to break into the field. That’s why she invested in a couple of extra certifications in sugaring and waxing. One of her first job offers was at a salon in Kirkland, where she was asked to sign a contract agreeing to a two-year commitment in exchange for $5,000 in training. She was new to the industry, she told me, and she “didn’t think they would hold the contract over my head.”

Bal says the training provided no transferable credential. It involved a list of services that needed to be completed under supervision, like sugaring eyebrows or waxing the bikini line — all things Bal felt she was already trained in. This irked her but a final straw was a training session that involved waxing the owner’s legs. Bal says the owner showed up an hour and a half late to her appointment and was completely absorbed in her phone when she was supposed to be monitoring the process. Bal describes herself as highly collegial and forgiving, but this made her furious. “I wasn’t learning anything,” she says. After three months, Bal quit. Soon after that, she received an invoice for $1,900 in training.

Karina Villalta, the salon owner, disputed Bal’s characterization of her training. Villalta explained that she always has trainees practice on her before they start seeing clients so she can “feel and assess the pressure and technique,” and she claims she was paying full attention during the waxing session. Employees who bounce from job to job, she told me, are “why small businesses have to have reimbursement agreements.” Many small-business owners say these agreements help them stay afloat and manage their labor costs — the largest expense for most businesses — by making sure their investment of time and money doesn’t walk out the door. “During the training period for a new employee, I cannot see clients myself so I am losing that money,” Villalta said. “Or I am coming in and training them on my days off.”

When Bal refused to pay, Villalta sued her in small-claims court. In a sworn statement to the court, another former employee testified that Villalta told her that she deliberately used the contract to pressure workers into staying. (Villalta denies saying “anything close to or resembling that statement.”) That employee had left the salon to move to Arizona, and she said she had paid just to avoid the hassle, but she found the amount “unjust and not accurate” as a reflection of her training. The judge ruled in Bal’s favor, and the debt was waived. Villalta says the judge told her that she was within her rights to recoup money for training, but Bal had left part way through her training, and the salon’s contract stipulated that the training had to be completed to require reimbursement.

Bal’s co-worker’s situation speaks to a problem with these contract clauses: Workers often don’t have the time, money or desire to defend themselves in court. Even if they believe the terms of their contract are illegal, fraudulent or inappropriately applied, most of them, especially if they don’t have a union, never get to the point where they find out. “A lot of people are just going to try to make it work for them,” says Catherine Ruckelshaus, legal director of the National Employment Law Project.

Stay-or-pay clauses are similar to noncompete agreements, which moved into the spotlight in the last decade after revelations that fast-food workers at Burger King, Jimmy John’s and Carl’s Jr. were being required to sign contracts barring them from working for competitors. (All three companies have since ceased the practice.) Researchers have found that noncompete agreements depress employee mobility even when unenforced, and when they are made illegal, employee mobility rises by 11 percent. The Federal Trade Commission has undertaken a recent public campaign to outlaw them. California, Minnesota, North Dakota and Oklahoma have already banned the practice. But as noncompete agreements fall out of favor, stay-or-pay clauses are poised to replace them. They work similarly, by discouraging quitting, and they are spreading in professions that once relied on noncompete provisions to limit worker mobility.

Because employment contracts are private, they are hard, if not impossible, to regulate proactively, meaning that employers can bury anything they want in them, even if the terms are expressly illegal. The California attorney general, Rob Bonta, acknowledged this in 2022 when he announced that employers were still putting noncompete provisions in contracts even though they were unenforceable under state law. Employers knew the provisions wouldn’t hold up in court, but they didn’t have to: They work by limiting employee mobility before anyone even seeks a legal remedy. These illegal contract terms have wider implications for labor and civil rights law. “They can be used as a deterrent against people suing for race or wage discrimination or unpaid overtime,” Seligman told me, discouraging people from speaking up for fear of being fired.

Politicians, including many Republicans, widely acknowledge that the decline of labor unions has been correlated with lower or stagnating wages and rising income inequality. Worker mobility — the ability to quit and change jobs — has received far less attention from policymakers, but the right to leave a workplace may be no less important than the right to organize one. Over the past 40 years, wages have decreased along with worker mobility. When people can quit low-paying or dangerous jobs and move to better employers, it puts upward pressure not only on wages but on working conditions. Contract provisions that prevent or discourage quitting, like noncompete agreements and stay-or-pay clauses, are a mechanism by which job mobility is halted. For that reason, Seligman says, in addition to violating minimum-wage and trafficking laws, stay-or-pay clauses may also violate antitrust law because they are fundamentally anticompetitive, restraining workers from participating in the open market for their labor. For Seligman, stay-or-pay cases are illustrative of the ways in which neutral-seeming and hard-to-decipher contractual language is “deployed to inflict real cruelty on human beings.”

On a sunny day in late winter, I met Vidal on a busy street corner in Upper Manhattan. He had moved to the Morningside Heights neighborhood, near Columbia University, to be closer to his new job at an intensive-care unit at a major hospital. I asked if he knew a good cafe in the area where we could talk, but he told me that he works so much that he hasn’t yet been able to get to know the area. We walked north a couple of blocks and found a small, quiet cafe. I told him I was surprised that he’d taken a job in an I.C.U., one of the most challenging assignments in a hospital, considering the intensity of the nursing home he left. Vidal responded that challenging work wasn’t what bothered him. He has always wanted to learn new skills and advance, but that wasn’t possible at the nursing home because the workload was so heavy and the conditions were so dangerous. “I actually feel supported in my new job,” he told me.

Regulators, governmental officials and politicians are starting to take notice of stay-or-pay clauses. The Federal Trade Commission’s proposed ban would include TRAPs that operate like de facto noncompetes, though it’s unclear how that category would be determined. Last June, the Consumer Financial Protection Bureau announced an investigation into “practices that leave workers indebted to employers,” indicating that it may use its power as a consumer-debt watchdog to intervene in such cases. The agency was spurred to investigate by a letter sent by the Democratic senators Sherrod Brown of Ohio and Patty Murray of Washington, among others. The Department of Labor announced in late March that it was filing its own lawsuit against A.C.S. and its owner, Sam Klein. (Vidal’s case brought the company to its attention.) And in April, a court ordered Vidal’s arbitration proceedings to be paused while his civil case proceeds, the court finding, among other things, that Vidal’s claim under the federal trafficking law had merit.

“Things are calming down for me,” Vidal told me at the cafe. The cost of living in Manhattan meant that he was still struggling to make ends meet, and the unresolved case hung over his head, but he seemed largely at ease. He was saving money and hoped to be able to return home to the Philippines and see his family. His major concern that day was that he badly needed a haircut. After talking awhile, he said goodbye and left in search of one.

Opening illustration: Source photographs from Shutterstock; Sean Gladwell/Moment/Getty Images

Back to top button