More Employers Are Requiring Quitting Employees To Pay Them Back for Training Costs. Can They Do That?

For many new employees, part of the onboarding process involves employer-provided training that may be required to perform their jobs. Plenty of current employees also receive training throughout their tenure to expand their skill sets or stay current with changes that impact executing their jobs. Conversely, employers invest significant time, money, and effort to provide such employee training. So when employees quit after reaping the benefits of that training, taking their knowledge and skills elsewhere, employers see a wasted investment. And with increasing frequency, those employers demand or require departing employees to pay them back.

As recently reported in the New York Times, companies are asking new hires to sign so-called “training repayment agreements” as a condition of employment. Often sprung upon a candidate late in the hiring process, these agreements, sometimes and perhaps more appropriately called TRAPs (training repayment agreement provisions), require employees to pay back training costs if they quit their jobs before the end of a specified period.

According to the Times article, nearly 10 percent of workers in a 2020 study by Cornell University’s Survey Research Institute reported being covered by a TRA. These agreements are particularly common for positions that require specialized and costly training, such as nursing, aviation, and trucking.

An employer that wants to enforce a TRA against a departing worker may file a lawsuit seeking to recover training costs or withhold money from any wages, bonuses, or other compensation that may be due to the employee. Needless to say, many workers who have signed a TRA may be reluctant to pursue new opportunities and switch jobs if they fear a costly lawsuit or judgment. Of course, from the employer’s perspective, keeping an employee from leaving after investing in their training is precisely the point.

Are Training Repayment Agreements Legal?

As they have proliferated beyond high-wage earners to workers on the lower end of the pay scale, TRAs have drawn increasing scrutiny from state and federal regulators charged with enforcing labor laws. The Biden administration has been particularly aggressive in challenging the legality and enforceability of TRAs as part of their effort to eliminate non-competition agreements and other provisions that limit workers’ rights or keep them trapped in their current jobs.

For example, the federal Consumer Financial Protection Bureau (CFPB) released a report in July 2023 expressing concerns about “employer-driven debt,” including debt triggered by TRAs. The CFPB noted, “Even if the TRAP is not enforced, its presence has the power to accomplish the intended consequence of pressuring workers into staying.” While the bureau has issued no proposed rules about the use of TRAs, it said it “will continue to evaluate the use of TRAPs or other employer-driven debts for potential violations of consumer financial laws.”

TRAs for Employer-Mandated Training Are Likely Illegal

The enforceability and legality of a TRA turn primarily on whether the employer mandated the training at issue or whether the employee voluntarily undertook the training. Generally, a TRA involving employer-mandated training would likely be unenforceable under both Michigan and federal law.

Under Michigan’s Payment of Wages and Fringe Benefits Act (WFBA), employers cannot require employees, as a condition of employment, to reimburse them for employer-mandated training after they resign. In a case involving a “tuition contract” that required an employee as a condition of employment to pay the employer back for training if they quit before a specific time, the Michigan Supreme Court held that such a contract violated that law’s prohibition on “kickbacks or payments of any kind to an employer in return for employment or its continuation.” Sands Appliance Servs., Inc. v. Wilson, 463 Mich. 231, 241, 615 N.W.2d 241, 247 (2000).

The takeaway: while TRAs for voluntary training may be generally enforceable, an employee who was either misled or coerced into signing the agreement may have grounds to challenge its validity. If you are a Michigan worker who has signed a training repayment agreement and has concerns about whether your employer could come after you for reimbursement, the best way to understand your rights is to meet with an experienced Michigan employment attorney. Please contact us to speak with one of the employment law attorneys at Sommers Schwartz today.