Most folks go to work for the paycheck and advantages. What they sometimes don’t anticipate is to have to return a few of the money after they depart.
But with some advantages — akin to signing or retention bonuses, tuition reimbursement and a few types of coaching — employees could have to pay their employer again if they’re topic to a so-called stay-or-pay settlement, which specifies that the worker can be on the hook to repay the corporate for the price of sure advantages if they don’t keep on the group for a minimal period of time.
Why? On the one hand, “employers are trying to get a reasonable return on their investment,” mentioned Jonathan Crook, a accomplice at Fisher Phillips, which represents administration in labor and employment issues.
In different phrases, paying for advantages supposed to entice or retain workers solely to have them get the profit after which quit — and doubtlessly work for a competitor — doesn’t supply an incredible ROI for the employer.
But there are some cases when “stay or pay” agreements are considered as abusive and limiting worker mobility, particularly after they apply to decrease earnings employees and involving what are known as coaching compensation agreements (typically referred to, particularly by critics, as TRAPs).
“TRAPs are often forced on workers as a condition of employment and require workers who receive on-the-job training — regardless of the quality or necessity of that training — to pay back the supposed cost if they leave their job before the end of a specified term,” Chris Hicks, a senior coverage adviser at shopper advocacy group Protect Borrowers, wrote in a weblog.
For occasion, they could cost a quitting payment of 1000’s of {dollars}, ought to an worker depart for an additional job.
Even if a contract is just not enforced, labor advocates say, simply understanding of its existence nonetheless can stress workers into staying somewhat than in search of a greater job elsewhere.
It’s unclear how widespread stay-or-pay agreements are. Researchers from the University of Michigan, Cornell University and the University of Maryland estimated that such agreements — together with something from on-the-job coaching to paying for an worker’s MBA program — might have an effect on as many as 1 in 11 workers (8.7%).
Historically, in accordance to a 2023 report from the Consumer Financial Protection Bureau, “Employers’ use of TRAPs began in the 1990s, predominantly for higher-skilled, higher-wage positions, such as engineers, securities brokers, and airline pilots. Still in use in those industries, they are now also common in lower- and moderate-wage industries where jobs are disproportionately held by women and minorities, such as in the healthcare, transportation, and retail industries.”
Earlier this week, California Governor Gavin Newsom signed into legislation a first-in-the-nation measure banning sure stay-or-pay provisions and placing guardrails round others. It takes impact on January 1, 2026.
Among the brand new prohibitions: California-based employers could not search compensation for on-the-job coaching, apart from apprentice applications authorized by the Division of Apprenticeship Standards. And they might not search compensation for any kind of profit when a employee is let go with out trigger or their job is eradicated.
But the brand new legislation nonetheless permits employers to impose some kinds of stay-or-pay agreements if they meet sure guardrails. Among these nonetheless allowed as well as to authorized apprentice applications are signing or retention bonuses, government-sponsored mortgage compensation help and tuition reimbursement however just for “transferable credentials” (which means a level or certificates from an accredited third get together that’s not particular to the individual’s job). In phrases of bonuses and tuition reimbursement, if an worker leaves ahead of the keep interval, the quantity of money they want to repay should be prorated. So if an worker will get a signing bonus however solely stays on the firm for half the time required, they may solely want to pay the corporate half the quantity after they depart.
Employees additionally should have the choice to take their bonus after they depart the corporate somewhat than after they begin, so that they don’t threat owing money if they depart earlier than the top of the keep interval — which is able to now be restricted to two years and will not embody curiosity accrual.
The transfer was welcomed by the California Nurses Association, which represents one of many industries during which such stay-or-pay agreements have been used. “With the threat of having to pay back a debt or fee to their employer, ‘stay-or-pay’ contracts indenture workers to remain at a job and chills workers from seeking better wages or working conditions,” the union mentioned in an announcement.
It is just too early to predict how the brand new legislation will affect the way in which employers working throughout a number of states, together with California, may draft their very own stay-or-pay provisions, Crook mentioned.
Or what number of different states could comply with in California’s footsteps.
Protect Borrowers notes that there have been legislative efforts to prohibit stay-or-pay agreements in a number of different states, together with New York, which handed the “Trapped at Work Act” in June, though it has but to be signed by Governor Kathy Hochul.