Stay or Pay Hiring

Have you heard of a non-compete agreement (NCA)? About 20% of Americans (roughly 30 million people) work under a non-compete agreement in their employment contract. The Federal Trade Commission (FTC) defines it as "a contractual term between an employer and a worker that blocks the worker from working for a competing employer, or starting a competing business, typically within a certain geographic area and period of time after the worker's employment ends." Non-compete clauses tend to discourage workers from leaving jobs and they decrease competition for workers, thus lowering wages over time. [As a side note, non-disclosure agreements (NDA) are different from non-compete agreements in that they usually do not prohibit an employee from working for a competitor.]

Non-compete clauses are common in professions such as media, financial services, corporate management, manufacturing, and information technology. In the United States, the legal status of non-compete agreements are subject to individual state regulations. Some states do not enforce them at all (North Dakota and Oklahoma), while others limit the length of time it can be enforced (in Utah, it is one year).

"Stay or Pay" clauses are similar to NCAs in that they can discourage employees from quitting or changing jobs. 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. This type of clause was common only for certain high-paying roles or for specialized industries, such as airline pilots and software engineers. As the use of stay or pay clauses has grown rapidly over the past decade (and especially since the pandemic), these agreements are now being applied to bank workers, sales people, police officers, firefighters, nurses, electricians, and teachers - and even aestheticians and dog groomers. Some legal experts estimate that stay or pay clauses could now be in industries that employ one-third of all American workers.

The cost of hiring and training workers used to be shared by employers, unions, and the federal government. But as government investment dried up and union density began to drop, employers began searching for ways to pass those costs to their employees. 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."

Many small-business owners say these agreements help them stay afloat and manage their labor costs, which is the largest expense for most businesses, by making sure their investment of time and money doesn't walk out the door. Critics contend that training is a business overhead cost and that making employees agree to repay training expenses is similar to requiring restrictive non-compete agreements (NCAs).

The line between recouping costs and penalizing workers for leaving can be blurry, and companies have increasingly taken advantage of that ambiguity. Regulators, governmental officials, and politicians are starting to take notice of stay-or-pay clauses. The FTC's proposed ban would include TRAPs that operate like de facto noncompetes, although it is unclear how that category would be determined. Last June, the Consumer Financial Protection Bureau (CFPB) 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. 

For now, it's up to you to avoid funding an employer's overhead when you quit. Read all job offers, employee policy handbooks, and all associated documents carefully before accepting a new job.