Training repayment agreements (TRA) are a tool for retaining employees after they received employer-paid training. Generally, a TRA requires an employee to repay an employer for the costs of training if the employee leaves employment before a set period of time. Several federal agencies are scrutinizing their legality.

For example, on September 1, 2023, Region 9 of the National Labor Relations Board (NLRB) issued a Consolidated Complaint against an employer alleging, among other things, that the employer violated Section 7 of the National Labor Relations Act (NLRA), when it required two employees to repay training costs incurred during employment pursuant to the terms of an employment agreement. As alleged in the Consolidated Complaint, the employees signed employment agreements at the start of their employment that identified the employer’s initial training program costs and the yearly continuing education training costs. The agreement stated that if the employee left within the first 12 months of employment, the employee would owe the full costs of the training and a prorated amount if the employee left within the first 13 to 24 months of employment. In the Consolidated Complaint, the Region 9 regional director alleged the employer sought repayments from each employee for $50,000 and $60,000, respectively. The Consolidated Complaint also alleged other provisions of the agreement were unlawful, including confidentiality, non-disparagement, and non-competes provisions.

In a related NLRB press release, the Region 9 regional director explained that such provisions interfere with employees’ rights under Section 7 of the NLRA because they “in practice cut off employees’ ability to leave their job”. In support of this position, the Region 9 regional director referenced a May 30, 2023 memorandum from the NLRB General Counsel Jennifer A. Abruzzo to all regional directors. In that memorandum, General Counsel Abruzzo set forth her view that, except in limited circumstances, non-compete agreements violate the NLRA. Relevant to the discussion of TRAs, she wrote, “[I]n my opinion, business interests in retaining employees or protecting special investments in training employees are unlikely to ever justify an overbroad non-compete provision because U.S. law generally protects employee mobility, and employers may protect training investments by less restrictive means, for example, by offering a longevity bonus.” While the memorandum and the allegations in the Consolidated Complaint do not represent current Board law, the Board has issued numerous decisions in the last year adopting General Counsel Abruzzo’s positions.

Further, the Federal Trade Commission (FTC) has proposed a new rule that, if made final, would prohibit some TRAs. The FTC’s proposed rule targets traditional non-compete clauses, as well as “de facto non-compete clauses” that have the “effect” of prohibiting workers from seeking or accepting employment after the conclusion of the worker’s current employment. The FTC has cited TRAs as one of two examples of what may be considered a “de facto non-compete clause”:

A contractual term between an employer and a worker that requires the worker to pay the employer or a third-party entity for training costs if the worker’s employment terminates within a specified time period, where the required payment is not reasonably related to the costs the employer incurred for training the worker.

According to the FTC, non-compete clauses — including some TRAs — lower wages for both workers who are subject to them and workers who are not, because they prevent workers from leaving jobs and decrease competition for workers. If the proposed rule is made final, it would supersede all contrary state laws and subject TRAs to challenge.

Finally, the Consumer Financial Protection Bureau (CFPB) — the agency that implements and enforces federal consumer financial laws — issued a report on July 20, 2023, regarding consumer risks posed by “employer-driven debt,” which it defined to include TRAs. The report concluded that the use of TRAs “may pose substantial risks to consumers, particularly when employers use unequal bargaining power to require workers to become indebted to the employer or an affiliate as a condition of employment.”

In addition to this increasing federal scrutiny, some states have passed legislation prohibiting TRAs or are considering similar legislation. In light of the growing potential for legal challenges, employers should continue to assess the viability of TRAs, including the terms and conditions under which employees enter into such agreements.