You may have heard about "stay-or-pay" provisions in employment contracts—clauses that require employees to repay costs if they leave before a certain period. While these provisions are becoming more common, government agencies are pushing back, arguing they may unfairly burden workers.

Stay-or-pay provisions can have a major impact on your career path. That's why it's essential to understand them fully before signing any contract that includes one.

Table of Contents:

• What Exactly Are Stay or Pay Provisions?
  • The "Stay" Part
  • The "Pay" Part
  • Types of Programs with Stay or Pay
• Why the Controversy?
  • The Good Intentions (Sometimes)
  • The Dark Side of Stay or Pay Provisions
• Government Pushback on Stay or Pay Provisions
  • NLRB's View
  • Proposed NLRB Standard
  • State Law Considerations
  • New York's Example
• When Stay or Pay *Might* Work
• Seek Guidance for These Types of Arrangements
• Conclusion

What Exactly Are Stay or Pay Provisions?

Stay-or-pay provisions are specific clauses found within employment contracts. These clauses often involve advanced training programs provided by the employer. They stipulate that an employee agrees to remain with the company for a predetermined period.

If the employee chooses to leave before that time is up, they are obligated to repay some, or potentially all, of the training costs. The Consumer Financial Protection Bureau (CFPB) refers to these as "Training Repayment Agreement Provisions," or TRAPs, highlighting their potentially restrictive nature.

The "Stay" Part

The "stay" component of the provision is relatively straightforward. An employee is contractually required to remain employed with the company for a specific duration, commonly two or three years, after completing a company-funded educational or training program. A breach of an implied contract can cause problems for employer and employees.

This arrangement might initially seem appealing to employees seeking to enhance their skills. However, it becomes less attractive when considering the potential downsides, which are often less explicitly discussed.

The "Pay" Part

The "pay" aspect of the provision comes into effect if an employee voluntarily leaves the company before the agreed-upon timeframe. Should the employee depart, they become liable for a fee. This fee can restrict employee mobility.

This fee is intended to reimburse the employer for the training investment made in the employee. This may encompass various expenses, including tuition fees, certification costs, or the provision of specialized equipment.

Types of Programs with Stay or Pay

These provisions are not limited solely to tuition reimbursement programs. They can also appear in a variety of other contexts, broadening their scope and potential impact on employees. These stay-or-pay contracts restrict employee mobility in multiple industries.

Stay-or-pay clauses can also be associated with the following:

• Professional courses, examinations, and certifications required for career advancement.
• Apprenticeships or other structured training programs designed to develop specific skills.
• Programs that provide employees with specialized tools or equipment necessary for their job functions.

Why the Controversy?

On the surface, stay-or-pay provisions might appear to be a fair exchange. The employer invests in their employees' professional development, and in return, the employees become more skilled and contribute more effectively to the organization.

It seems like a simple and mutually beneficial arrangement.

The Good Intentions (Sometimes)

Some companies genuinely utilize these clauses as a means to cultivate a highly skilled workforce and demonstrate their commitment to employee growth. These employers typically have a genuine desire to foster long-term employee commitment and loyalty. The provisions restrict employee mobility to an extent.

These organizations aim to create a supportive environment where employees can thrive and advance their careers. This may also cause a potential unfair labor practice.

The Dark Side of Stay or Pay Provisions

Unfortunately, not all companies utilize these provisions with benevolent intentions. Some employers may use stay-or-pay clauses as a tactic to retain employees, potentially creating a situation where workers feel trapped in their current roles. These provisions restrict employee rights.

These companies prioritize recouping their training investment. This is more so than fostering a positive and supportive work environment. These training repayment agreement provisions are seen to some, as harmful.

Government Pushback on Stay or Pay Provisions

Regulatory agencies, such as the CFPB and the National Labor Relations Board (NLRB), have expressed concerns about these agreements. Both organizations believe that stay-or-pay provisions can be detrimental to employees, particularly those in vulnerable groups, and may even constitute an unfair labor practice.

The CFPB views these provisions as potentially harmful to employee mobility and career advancement. The agency contends that stay-or-pay clauses can restrict employees' ability to change jobs, potentially leading to wage stagnation and forcing workers to remain in positions they no longer find suitable.

NLRB's View

The NLRB General Counsel (NLRB GC) has indicated that these provisions might violate the National Labor Relations Act (NLRA). The NLRB GC believes these contracts may create unreasonable obstacles for employees seeking alternative employment.

The underlying reasoning is that stay-or-pay clauses can effectively prevent employees from leaving their current employer. This stems from fear of incurring substantial repayment penalties. Provisions restrict employee's ability to look elsewhere.

Proposed NLRB Standard

The General Counsel, Jennifer Abruzzo, issued memorandum GC memo (Memorandum GC Memo) pushing for a strict standard, advocating for specific requirements that businesses must adhere to when implementing stay-or-pay provisions. These provisions restrict employees and are in many instances, harmful.

Any such requirements should aim to create a mutually beneficial arrangement for both the employee and the employer. These provisions should also address any concerns or fears that employees may have when entering into an employment agreement that includes a stay-or-pay clause.

Below are the proposed requirements for these arrangements under the proposed framework:

• The training or educational opportunity must be fully voluntary and offer a tangible benefit to the employee, such as a recognized certification or skill enhancement.
• The repayment amount must be reasonable and proportionate to the actual cost of the training or benefit bestowed, avoiding excessive or punitive penalties.
• The required "stay" period must be of a reasonable duration, typically aligned with the time it would take for the employer to realize a return on their training investment.
• If the employee is terminated without cause during the agreed-upon "stay" period, they should not be obligated to repay the training costs.

State Law Considerations

State laws can introduce an additional layer of complexity and potential limitations on the enforceability of stay-or-pay provisions. Each state has its own unique set of laws and regulations governing employment practices. A labor relations board can assist in providing insight.

New York, for instance, has specific regulations that limit an employer's ability to make deductions from an employee's wages. The state also prohibits employers from recouping expenses that could not have been legally deducted from an employee's paycheck in the first place.

New York's Example

New York has very specific regulations regarding when an employer can and cannot require an employee to repay training or educational expenses. As a result, many employers in New York are very cautious when implementing stay-or-pay agreements. Many also require the aid of their general counsel.

New York law explicitly prohibits employers from requiring employees to pay for tools or equipment that are considered necessary for the performance of their job duties. If a stay-or-pay provision pertains to such tools, it is generally unenforceable in the state.

While New York permits tuition repayment agreements, there are specific conditions that must be met. These state that there must be full disclosure of the terms and that the employee must derive a clear benefit from the educational opportunity.

Here are factors that must be addressed for a repayment agreement provision to be considered valid in New York State:

When Stay or Pay *Might* Work

There are specific circumstances where these stay-or-pay clauses may be deemed lawful and viewed differently. It ultimately depends on the specific details of the agreement and the applicable state laws. The memorandum GC memo addresses this in it's writing.

The structure of the agreement and the underlying reason for the repayment obligation (e.g., deducting from wages versus calculating a bonus) are critical factors. These provisions should only be implemented when necessary to protect the employer's legitimate business interests and the employee's long-term career development.

Here is an example of when a Stay or Pay provision can be implemented:

Seek Guidance for These Types of Arrangements

Due to the variations in state laws across the country and the increasing scrutiny of stay-or-pay provisions, employers are strongly advised to consult with experienced employment attorneys before implementing these types of agreements. This can minimize infringement upon employee's rights.

This proactive approach helps protect both the employer and the employee, ensuring that the agreement is legally sound and ethically responsible. Careful consideration and legal counsel can help avoid potential disputes and costly litigation in the future. Abruzzo issued memorandum to address the details of the agreements.

Conclusion

Stay-or-pay provisions are currently under intense examination from various stakeholders, including employees, employers, and regulatory bodies. With the national labor relations board reviewing many cases, these types of contracts are in question.

Seeking legal counsel is crucial to navigate the intricacies of these agreements. By collaborating with experienced employment lawyers, businesses can ensure the legality and fairness of their stay-or-pay provisions, fostering a positive and productive work environment.