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Home»Startup»Beware the Contract Clause Loading US Workers With Debt
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Beware the Contract Clause Loading US Workers With Debt

August 4, 2022No Comments3 Mins Read
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The bite of a TRAP can be particularly painful when a worker has been led to believe that it won’t be used. Scally could not afford to pay her debt to PetSmart but claims her manager said that as long as she worked at the company long enough for it to recoup the $5,500, it likely wouldn’t enforce the agreement. She stayed until September 2021, when she calculated she had made PetSmart its money back.

Four months later, Scally checked her credit report and saw that she owed $5,500 to “IC System.” She called to investigate and learned the company was a debt collector hired by PetSmart. Scally had been working to get her credit score high enough to receive a loan to start her own animal rescue business; now it plunged. “It was like you took 10 steps forward, and now you’re pushed back eight,” she says.

Adrian Valdes, formerly a dog bather at PetSmart, describes a similar ordeal. They enrolled in the Grooming Academy program in 2020 because it was their only path to receiving health insurance and guaranteed hours. But three months after completing the training, they found a dog bather job at another company with better pay and health insurance.

Valdes preferred bathing canines to grooming them—but faced the perils of the TRAP. Two former colleagues who had left before their contracts ended told Valdes that PetSmart had not enforced their repayment agreements. Valdes calculated that their own earnings for the company exceeded the $5,500 fee and decided to quit. About a month later, a bill came from a collection agency for $5,500. “I was the unlucky one,” Valdes says.

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Chris Hicks, a senior policy advisor at SBPC and coauthor of its report, says that Scally’s and Valdes’ ordeals are not unusual: Most workers the authors spoke to didn’t know if their TRAP was going to be enforced. “They’d say, ‘Some of my former coworkers left and weren’t sued. So I think I can leave.’ But then they would see it enforced.” That pattern can hit workers with unexpected and unaffordable debt, Hicks says, or cause people to stay in bad jobs, fearful of the consequences of leaving.

Luckily for Valdes, they had attended meetings hosted by the worker advocacy organization United for Respect, which helped dispute the charge. It was eventually canceled. If it had not been, Valdes says, “I would have declared bankruptcy.”

Previous cases brought against employers have argued that TRAPs violated the Fair Labor Standards Act, but courts have often upheld the agreements. Yet some states have recently begun to restrict use of TRAPs, and federal regulators have also shown an interest.

In 2020, California lawmakers enacted legislation that bars the use of TRAPs for health care workers in the state, and in May this year Colorado legislators passed a bill prohibiting their use for standard on-the-job training. In June, the US Consumer Financial Protection Bureau opened an inquiry into employer-driven debt—including TRAPs.

After triggering her own TRAP, Scally found work as an animal care technician in South San Francisco. The PetSmart debt and dispute has pushed back her timeline, but she still hopes to open her animal sanctuary one day, where she can rescue dogs and groom them on her own terms.

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