There’s a good chance that, over the past couple of years, you’ve considered quitting your job. One thought that probably crossed your mind was whether you could afford it. But what if you took the plunge, as tens of millions of workers have done since the beginning of the pandemic? You may have planned for other ways to cover housing costs, food, medical needs, ongoing loan payments, and perhaps childcare. But imagine, after your careful planning, receiving a letter that says you owe your former boss thousands of dollars for quitting. That’s exactly what happened to BreAnn Scally after leaving her grooming job at a Salinas, California PetSmart because of unsustainable working conditions.
Scally was bound by a Training Repayment Agreement Provision (TRAP) that required her to repay the cost of her training if her job ended within two years. In Scally’s case, she learned that PetSmart was going after her for $5,500 for attending its “Grooming Academy.” Yet, the so-called Academy provided little useful training and quickly sent her out to groom pets for paying customers, all while she struggled for attention from trainers. Grooming Academy “graduates” often earn little more than the minimum wage.
Recently, many student loan borrowers celebrated President Biden’s partial cancellation of traditional student debt. But TRAPs are another and perhaps more nefarious form of student debt, called “shadow” student debt. Shadow student debt is less regulated than traditional student loans but is still imposed in exchange for purported education and training. Shadow student debt products like TRAPs may extend to industries that represent more than a third of private sector workers, according to a July 2022 report. Indeed, a 2020 Cornell Survey Research Institute survey found that nearly 10 percent of U.S. workers worked under TRAPs.
Millions of workers, many of whom are low-wage or low-middle wage workers and disproportionately people of color, are likely bound by TRAPs. These include workers whom we relied on during the worst phases of the pandemic—nurses and EMTs, retail workers and truck drivers—and whose services are in the highest demand now. The TRAP acronym doesn’t belie their situation: many of them could command better pay by going to another employer but feel trapped in their current jobs. And that’s precisely the purpose: at least one trade association has counseled its members to consider TRAPs as a way to keep workers from leaving. These contracts can be so one-sided that at least one judge has likened TRAPs to indentured servitude. Moreover, many workers bound by TRAPs are simultaneously bound by other debt products disproportionately targeted at communities of color, such as “buy now, pay later” schemes, payday loans, and salary cash advances. Indeed, Scally, a Black woman, already had student loans and other debt before the TRAP debt surfaced.
Until now, civil rights groups, unions, government agencies, and academics have focused scrutiny on noncompete agreements that prevent workers from working for competitors. This criticism is deserved, and a number of state governments have passed statutes limiting traditional noncompete agreements or banning them outright, such as California’s ban. But firms seeking to keep wages down without causing mass exodus are already using TRAPs as workarounds to noncompetes because TRAPs seem more justifiable but have the same end result.
But TRAPs can be worse for some low-wage workers than traditional noncompete agreements. Imagine fast-food workers who cannot work for a competitor fast food chain because of a traditional noncompete—the workers could easily find a job in another industry. But if those workers are indebted to their employer under a TRAP, they must pay no matter where they work next, or even if they do not work.
Worker advocacy groups like the National Employment Law Project have highlighted the growing use of TRAPs. In 2022, a nurses’ union found that almost 45 percent of surveyed nurses with one to five years’ experience have been bound by TRAPs, compared to just a quarter of longer-serving nurses with 11 to 20 years’ experience.
Government agencies have also taken notice. The Consumer Financial Protection Bureau (CFPB) has sought workers to share their experiences with employer-driven debt, signaling the possibility that it may rightfully view TRAPs and other forms of shadow student debt as extensions of credit to workers. That is, if firms decide to provide training services for a cost, workers become consumers of those services and are covered by consumer protection laws and the agencies that enforce them.
BreAnn Scally is bringing this argument to PetSmart. In July 2022, she filed a first-of-its-kind lawsuit in California arguing that PetSmart’s TRAP is invalid under California consumer, education, and employment laws. The complaint presents a Catch-22 for PetSmart if it attempts to avoid liability under both employment laws and consumer laws. On one hand, employment laws prohibit employers from charging employees for training that benefits the employer. So, if the Grooming Academy is primarily for PetSmart’s benefit, then the TRAP would violate California employment law by requiring workers to pay for the training. On the other hand, consumer laws protect borrowers of loans for personal use, and education laws require that any post-secondary education provider obtain a license. Therefore, if the Grooming Academy is primarily for the workers’ benefit, then the TRAP terms would violate California consumer laws by unfairly and deceptively indebting workers and would violate California education laws because the Grooming Academy was unlicensed. PetSmart can take its pick, but the suit’s innovative claims hold the employer accountable for attempting to have its cake and eat it, too. For this reason, Scally’s suit has a strong chance of success.
Stories like Scally’s should put pressure on agencies like the CFPB to rein in TRAPs and ideally ban them altogether, as California has recently done for hospital health care workers. By offering debt-inducing services like training to workers, employers have become creditors and have thus waded into the jurisdiction of the CFPB and other agencies that protect consumer borrowers. In the meantime, if you decide to take the plunge and leave your job, make sure to read the fine print: there may be a TRAP or another form of shadow debt standing in the way.
Jonathan F. Harris (he/him/él) is an associate professor of law at LMU Loyola Law School Los Angeles. He writes and speaks on work law and contracts, worker mobility, and workforce development. He thanks Northwestern University Law Review Online Editor-in-Chief Taylor Nchako and Online Articles Editor Ella Chochrek for their thoughtful and patient editing. This publication was prepared with support from the Student Loan Law Initiative, a project of the University of California, Irvine School of Law and the Student Borrower Protection Center program of the Shared Ascent Fund.