Tuition reimbursement programs and other support for formal employee training can be valuable workplace recruitment tools, but not all employees share the same level of gratitude to the employers that offer them.  While some employees may choose to remain for the long term with an employer who has invested in their professional development, others use their newly-earned skills and credentials to secure more prestigious positions or better compensation at other organizations.

Defining Terminology

“Stay or pay” provisions reflect one approach employers may take to reap the benefits of their financial investment.  Under such clauses, the employee commits to remain with the organization for a defined period of time (often three years) after completing the employer-funded education or training program.  This is the “stay” component.  If the employee leaves prior to that defined time period, the employee agrees to repay all or a portion of the cost of the tuition reimbursement or other financial support received.  This is the “pay” component.

Stay or pay is not limited to tuition reimbursement programs, but also can include:

• professional courses, exams, and certifications;
• apprenticeships or other specialized training programs; and
• programs that provide tools or equipment for employees.

Why the Bad Reputation

As previously noted, for some employers, “stay or pay” provisions are tied to programs that are offered as an investment in employees’ growth and development.  The clauses are designed to ensure employees do not take undue advantage, but the programs themselves stem from the goal of being an “employer of choice,” meaning a desirable workplace with a positive work culture.

Unfortunately, as indicated by the range of programs that may be subject to stay or pay clauses, unscrupulous employers may also use them, and for less positive reasons.  The worst of these organizations build their business around the lure of the training, with little or no intent that employees successfully complete the training program.  These organizations’ revenue source is the training program itself.

Legislative bodies and regulatory agencies keep drafting restrictions meant to address such abusive practices, but in this area as in so many other aspects of employment law, the legal response tends to be overly broad.  The result can be restrictions that negatively impact the training opportunities offered by organizations that seek to be employers of choice.

Where Federal Agencies Are Stepping In

Recently, the Consumer Financial Protection Bureau (CFPB) and the National Labor Relations Board (NLRB) have been outspoken in their opposition to stay or pay provisions.  The CFPB deems these provisions to be a form of employer-driven debt that is harmful to consumers.  The agency’s disdain is evident in the acronym that it assigned to the use of these clauses in the training context, defining them as “training repayment agreement provisions” or “TRAPs.”  CFPB faulted them for limiting worker mobility, suppressing wages, and pressuring employees to remain in jobs they no longer want.

CFPB cited specific harms caused by employer-driven debt, most notably:

• employees being coerced to take on debt as a condition of employment and face high-pressure tactics during the loan process;
• employers using deceptive fine print to alter the initial agreement terms without the employee’s agreement; and
• obstacles that impede career growth and access to higher wages.

Similarly, the General Counsel of the National Labor Relations Board, Jennifer Abruzzo, recently published a memorandum claiming certain “stay or pay” provisions are generally unlawful in nature. She similarly contended that these provisions impede employee mobility by imposing financial penalties for resignation.  Tying that harm back to the National Labor Relations Act (NLRA), the General Counsel asserted that stay or pay provisions deter employees from exercising their rights under the NLRA because they fear they will thereby risk suffering repayment obligations upon termination.

The General Counsel stated that she will strongly advise the NLRB to implement a standard requiring the employer to demonstrate that a challenged stay or pay arrangement:

• is voluntarily entered into in exchange for a benefit;
• has a reasonable and specific repayment amount;
• has a reasonable ‘stay’ period; and
• does not require repayment if the employee is terminated without cause.

The General Counsel asserted that the NLRB should mandate the rescission and replacement of stay-or-pay provisions that do not meet all the elements of that test, even if employees voluntarily agreed to them.

States Also Dislike Them

State laws also may preclude these types of provisions.  For example, New York law permits employers to make deductions from employees’ pay only for very limited reasons, and the wage laws additionally provide that an employer cannot require by separate payment any money that the employer is not allowed to directly deduct from the paycheck.

New York law expressly prohibits employers from requiring employees to pay for tools and equipment that are required for work.  Stay or pay provisions that are tied to the provision of such tools or equipment are therefore impermissible in New York.

In contrast, tuition reimbursement programs are permissible in New York, but the law expressly permits deduction/repayment only with respect to primary, secondary and post-secondary education or “similar” activities.  “Similar” is not expressly defined, which leaves some room to question whether repayment obligations tied to reimbursement for other educational purposes, such as professional courses and exams, could be subject to a stay or pay clause.

Even when the purpose of the deduction is permissible, New York law additionally requires that the repayment obligation be:

• expressly authorized in advance, in writing by the employee;
• for the benefit of the employee; and
• voluntarily agreed to by the employee only after disclosure of all terms and conditions of the repayment, its benefits, and the details of the manner in which deductions will be made.

Get Advice to Avoid Trouble

There remain situations in which stay or pay provisions are entirely permissible.  Sometimes, how they are structured and what the repayment obligation is tied to (e.g., recoupment from wages as contrasted with offsetting in the calculation of a discretionary bonus or severance payment) can make a difference in terms of their enforceability.  Given the variances in state law, and the uncertainty as to whether and when the current objections raised by federal government agencies may be set aside by a new presidential administration, employers are best served by obtaining legal advice before entering into these types of agreements with their employees.

By Tracey I. Levy and Delaney Rechenberg