What’s Trending: Stay-or-Pay Clauses
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Have you ever wanted to quit your job? Throw it all away and just deliver your notice letter. What if you couldn’t, and if you did, you owed money to your employer?
This is what’s behind the stay-or-pay clauses that have been snuck into many contracts of American workers. With a recent rise of lawsuits against companies that have been trying to retain workers amidst a labor shortage, even before the pandemic, this clause has come to confound workers, employers, and even lawyers.
Read all about it from top publications.
New York Times Magazine
What if you couldn’t leave your job? That is the question at the heart of Robin Kaiser-Schatzlein’s article for the New York Times Magazine. It opens with an anecdote, telling the story of Benzor Shem Vidal, a trained nurse from the Philippines who emigrated to the United States to work in an elderly care facility. He found out that the work was misrepresented and the amount of patients that he had to care for was unsustainable and dangerous for everyone involved. Even worse, when he quit, he was subjected to a stay-or-pay clause, meaning that he owed thousands of dollars to the company.
Stay-or-pay clauses are nothing new. Training-repayment-agreement provision, or TRAP, have been commonly used in high-paying specialized jobs, such as pilots and software employers. These are usually applied to “ensure” that employers don’t lose the investment they made when hiring someone. Usually, these apply for a set period of time, whether it is months or even years. They can also be used when the company pays for transferable skills, such as continuous education.
“The use of stay-or-pay clauses has grown rapidly over the past decade, and it has seemingly exploded since the start of the pandemic, as companies try to retain workers in a tight labor market.”
The main problem is not the existence of these clauses, but their misuse, as now they’re used by thousands of mid- and low-wage as a way to stop them from quitting their jobs. This has led legal experts to believe that almost a third of American workers are tied up in these clauses.
In the LinkedIn News blog, editor Jake Perez compiled some responses by members of the LinkedIn community to the New York Times Magazine article.
In this, Rebecca Fraser-Thrill, a career coach, expresses her discontent with this new policy. She points out how many socioeconomic reasons already make people stay in jobs they don’t like or are underpaid for, including the fear of not being able to find another job or losing their health insurance.
“A supportive, human-centered, meaning-nurturing workplace retains people. Period.”
Other LinkedIn members agree with the article that these agreements are illegal and rather time-consuming for employers and employees. As the Consumer Financial Protector Bureau informed in the recently released report, these clauses are predatory and end up driving people into debt.
Not only that, but ultimately the TRAPs impede worker mobility, especially when it comes to higher wages, by dissuading employers from raising salaries in an effort to keep employees. This means that employees’ careers end up getting hurt in the process.
This type of clause ends up putting a nail in the coffin of the Great Resignation.
Fortune
Except that job hopping is pretty much dead and has been for a while, according to Fortune. The latest report from the Bureau of Labor Statistics shows that workers are quitting their jobs at the same rate as before the pandemic, thus ending that advantage that gave way to the Great Resignation.
“For a while, workers were changing their jobs at rates well above historic levels. Now, they’re hunkering down and sticking with the same employer.”
A driving force behind the Great Resignation was money. People found better opportunities by job hopping around, with pay gains accelerating in spring 2021 with job switchers peaking at 16.4% in June of that year.
There is also less money in job hopping now than in 2022. A new hire could expect a 10% higher pay bump if they were hired in 2022 compared to 2021. According to the ADP Pay Insights report, today’s numbers have shrunk to 2.9% in September 2023.
The takeaway
Stay-or-pay clauses are becoming common in the American workspace as employers want to forcefully retain employees in a time of labor shortage. This has raised eyebrows, with many lawyers questioning how legal these types of contracts are, as some have been deemed illegal. Sadly, as contracts are a private business, there aren’t clear answers, but there’s hope. Last June, the Consumer Financial Protection Bureau announced an investigation into the practices that leave workers indebted to employers, while the Federal Trade Commission proposed a ban that includes TRAPs that work as non-competes.
