Should employers be using TRAs?

As state and federal agencies begin clamping down on non-compete and non-disclosure agreements by private employers, there have been reports of ex-employees being hit with high training repayment fees after they’ve quit.

The National Labor Relations Board (NLRB) and the Federal Trade Commission (FTC) have both made moves to cut out the practice, resulting in a rise in the use of Training Repayment Agreements (TRA) – or TRAPs – as employers find alternate ways to keep employees from quitting and to recoup onboarding and training costs.

Elizabeth Voss, L&E lawyer at Dykema, said that TRAs can seem like a good way for employers to ensure they don’t invest in an employee who might jump ship after six months, but there are some important things for HR to keep in mind when presenting these agreements to potential employees.

Late last month the The New York Times reported that a California physician assistant was sued for over $138,000 by her former employer, The Skin and Cancer Institute. The clinic was attempting to recoup training costs plus “loss of business”, NYT said.

The Institute’s TRA stated that the employee would owe them $50,000 for training if she left the company before 2025. She stayed for four months.

The company didn’t disclose the reasoning behind the $50,000 price tag, which Voss notes can be a costly mistake by employers, as often employees do not have the resources to pay such a high amount.

“How can training be that valuable? All it does is make it really hard for the employee to decide to leave,” she said.

When are TRAs okay to use?

In May of this year, the NLRB issued a memorandum confirming that non-compete and non-disclosure agreements are unlawful as they violate Section 7 of the National Labor Relations Act (NLRA), which prohibits employers from preventing employees from seeking better employment locally, and from organizing.

The FTC proposed the Non-Compete Clause Rule this year, which states that TRAs, as “liquid damages provisions,” can be so broad that they act as de facto non-compete clauses, making them unenforceable. For this reason, Voss explains that the intent behind TRAs must be clear.

“Is this something that is really just required for them to perform the work for you? Or is it some kind of training that will help them develop professional skills that they could use for another competitor?” she said.

If a TRA is a way for an employer to recoup costs on training that is specific to their systems, that will likely not be enforceable, Voss said. But if the skills learned are transferrable to a competitor, employers will have a stronger case in enforcing a TRA.

Employers can avoid costly or time-consuming litigation or other recoupment actions by working with employees to design more amenable repayment schemes, she said.

Timing counts with TRAs

TRAs are often presented to employees in the final stages of a hiring process, which detractors say puts employees at a disadvantage when they feel forced to sign or lose the offer.

Also, employees should be clearly informed at the time of hire about how the repayment will be recovered if the employee were to break the TRA.

“Many states have fairly specific requirements for deductions from pay,” said Voss.

“So if the intent is to be able to deduct the training repayment from the final pay, or other compensation, we just want to make sure that there's an understanding of how we would do that, and that we have proper authorization to do so, because often if the employee has given notice that they're leaving, that's not a time when the employee is most likely to be agreeable to executing another document.”