When 'Free' Job Training Is a Trap

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Photo credit: Mike Mozart

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Pennsylvania Attorney General Michelle Henry last week announced a settlement with PetSmart, the pet store and pet grooming outlet, over the corporation’s use of “free” employee training programs that were, it turns out, nothing of the sort.

After sucking them in with a promise of free training, PetSmart would apparently have employees sign an agreement that obligated them to pay back $5,000 — or $5,500 if they received pet grooming tools — within 30 days if they left their job within two years of receiving their training.

“Employees taking advantage of seemingly free training are seeking to better their skills and knowledge for their jobs. PetSmart took advantage of those aspirations and set Pennsylvania employees up to pay thousands of dollars while misrepresenting the terms,” said Henry in a press statement. “Practices like these are unfair and my office will continue to work to stop their use and protect hardworking Pennsylvanians.”

Under the terms of the settlement, PetSmart will stop all use of such agreements in Pennsylvania and is required to pay the AG’s office the rather measly sum of $20,000.

The contract at issue in the case is what’s known in the economic policy world as a “training repayment agreement program,” or TRAP. It’s important for policymakers, state law enforcers, and everyday workers to known about TRAPs for two reasons (neither of which are the killer acronym).

First, as was the case in Pennsylvania, training repayment agreements can be abusive and fraudulent on their own terms, if employees don’t understand what they are actually signing up for or are pulled in with a bait-and-switch that results in them facing absurd costs to leave their job.

Second, as jurisdictions increasingly work to eliminate non-compete agreements — which prevent workers from accepting job offers from a competitor within a certain timeframe and/or geographic area — employers are going to turn toward alternative contracts, including TRAPs, which can function as non-competes in all but name, foiling the intentions of lawmakers and harming workers.

According to survey results published early this year, nearly 9 percent of workers reported being subject to a training repayment agreement in 2020, more than double the number that reported having one in 2014. In addition to the pet grooming industry, workers in nursing, trucking, janitorial services, architecture, banking, and aviation all report having signed them.

And the numbers are dramatically higher in some industries. For examples, more than 44 percent of nurses who joined the workforce in the last five years say they have a training repayment agreement. National Nurses United, a labor union, notes that these agreements force nurses to pay up to $30,000 for leaving a job.

According to the Consumer Financial Protection Bureau, in a story that sounds eerily similar to the creep of noncompetes across the economy, TRAPs were first used in the 1990s and were mostly confined to high-paying, high-skill jobs. But since then, they’ve filtered throughout other low- and moderate-wage industries. One study found that training repayment contracts reduced quitting by 15 percent, and didn’t raise the quality of employees firms hire. They’re also more prevalent among younger workers, indicating that there has indeed been a pronounced shift in their use in recent years.

Now, I imagine at least some of you are wondering what the big deal is, if these agreements were voluntarily signed by workers. Well, as always in employment contracts, there are power issues at play, assuming workers even know they are signing a TRAP, which many workers report they do not. Desperation for a job, whether because the worker is unemployed or trying to escape a bad working situation elsewhere, can lead them to sign coercive contracts.

Also, researchers have noted that “Firms have strong incentives to artificially inflate their training costs, and can easily do so when the firm itself does the training,” making TRAPs even more unfairly onerous.

All that aside, it’s simply better for the economy — for both workers and consumers — if workers can freely leave jobs for new ones or leave their current positions to start their own companies. Limits on employee mobility harm everyone except for the employers who want to use their power to keep wages down. And ultimately, that’s what TRAPs and other coercive labor contracts do: Negate the ability of workers to use their leverage and skills to either find a higher-paying position or receive more money in their current job.

Again, this all needs to be contemplated in a world in which policymakers are working toward the widespread elimination of noncompete agreements, on precisely the ground that they blunt economic growth by limiting worker mobility. Five states already outlaw all noncompete agreements, with Minnesota joining the list last year, and many more states have laws that eliminate noncompetes either below a certain salary threshold or in certain industries. The Federal Trade Commission proposed a nationwide ban on noncompetes that is currently being litigated in various federal courts across the country.

Without the ability to use noncompetes, at least some employers will resort to contracts like TRAPs that function the same way, but can be even worse for workers. For example, a noncompete doesn’t prevent a worker from leaving an industry entirely by choice, maybe to go back to school or to change careers or to be a stay-at-home-parent, whereas a TRAP might if they can’t afford to buy their way out from under it.

The FTC rule, if it goes into effect, also attempts to cover contracts that function as noncompetes, including TRAPs. But just like with noncompetes, states should have their own laws against TRAPS, allowing for state-level enforcement and the application of state-level penalties.

Attorney general Henry did the right thing taking down PetSmart’s deceptive “free” training. But that’s only one small win in the much bigger battle for labor rights nationwide. If there are any state-level lawmakers out there aspiring to join the five states that have banned noncompetes entirely, and to ensure that those laws cover TRAPs too, here’s some model legislation to work with.

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