Two recent disputes involving healthcare entities demonstrate some of the legal risks associated with contract clauses that require employees to reimburse their employer for the cost of job-related training if employees leave or are terminated before a specified period, often referred to as training repayment agreements (TRAs).
Employers often argue that TRAs help recover investments in employee training, but critics claim that these “stay-or-pay” contracts—sometimes called “TRAPs”—can be excessive, one-sided, and serve to unfairly lock workers into jobs. Advocacy groups and labor unions have increasingly raised concerns about TRAs, arguing that they can prevent workers from seeking better opportunities and suppress wages. At the federal level, agencies like the Consumer Financial Protection Bureau and the Federal Trade Commission have also scrutinized these agreements during the Biden administration, citing potential anticompetitive effects.
HCA Investigation & Resulting Settlement
In the first matter, Hospital Corporation of America (HCA), one of the largest hospital operators in the country, has agreed to pay approximately $3.5 million to settle claims that it unlawfully “trapped” new nurses in overly restrictive training repayment agreements (TRAs). The settlements, announced by the attorneys general of California, Colorado, and Nevada, mark a significant development in the ongoing debate over the legality and ethics of such employment practices in the healthcare industry.
According to Court filings, the Company required many entry-level registered nurses to sign TRAs as a condition of participating in mandatory specialty training programs. These programs prepared nurses for work in critical areas such as emergency departments, intensive care units, and operating rooms. If a nurse left the hospital’s employment before completing two years of service, they were required to pay back a prorated amount representing the “value” of their training—sometimes amounting to thousands of dollars. State authorities alleged that HCA’s recruiters often failed to disclose these agreements during the hiring process, rushing candidates to accept job offers and only presenting the TRA for signature during onboarding with no option to negotiate.
Under the terms of the settlement agreement, the Company will pay $2.9 million in penalties to the three states and provide more than $580,000 in restitution to nurses who were affected by the agreements in California, Colorado, and Nevada. HCA will be prohibited from using or collecting on these agreements in the three states and they are required to void any debts owed from existing TRAs in those states. The settlements resolve a lengthy investigation into the use of TRAs, which state officials say violated consumer protection laws.
Truth In Lending Act and TRA Agreements
In the second matter—a putative class action litigation—a plaintiff group comprised of surgical neurophysiologists successfully alleged that SpecialtyCare, a provider of outsourced clinical services, was a creditor under the Truth in Lending Act (TILA). Plaintiffs alleged that in exchange for specialty training, SpecialtyCare required neurophysiologists to sign training repayment agreement contracts. These contracts required employees to reimburse the company for the cost of their training if they were to leave their job within three years. Plaintiffs alleged that the cost of the specialty training was forgiven if they remained employed for three years; however, employees who resign within one to two years of beginning their employment see their repayment agreement debt grow at an interest rate of about 25% on the principal cost of the training. Furthermore, plaintiffs claimed that an employee who resigns within two to three years will see their debt grow at an interest rate of about 50%. A Tennessee federal judge held that the plaintiffs had sufficiently alleged that SpecialtyCare is a creditor under TILA because the debt incrementally increases over time and with interest. This was sufficient to meet the definition of a finance charge under TILA.
Action Items for Healthcare Providers
- Review and Audit Current Employment Contracts: Conduct a comprehensive review of all employment contracts, especially those containing Training Repayment Agreements or similar clauses.
- Revise Unlawful TRAs: Consider revising the use of TRAs that could be considered restrictive, unfair, or not clearly disclosed during recruitment.
- Enhance Transparency in Hiring Practices: Ensure all terms and conditions, including any repayment obligations, are fully disclosed to candidates during the recruitment process—not just at onboarding.
- Provide Opportunity for Negotiation: Allow candidates to review, ask questions, and negotiate any contract terms, including those related to training costs.
- Train HR and Recruitment Staff: Educate HR and recruitment teams on lawful employment practices, contract transparency, and the risks associated with restrictive TRAs.
- Engage Legal Counsel: Consult with legal experts to review current practices and contracts and to guide responses to any regulatory inquiries or complaints.
Conclusion
This settlement and recent court ruling are notable in the ongoing scrutiny of training repayment agreements in healthcare and other industries. As state and federal regulators continue to examine the fairness and legality of these contracts, employers may face increasing pressure to ensure transparent and equitable employment practices. This is an important reminder that healthcare employers should review employment agreements, strength compliance programs, and remain informed on state and federal consumer protection laws. By being proactive, employers can protect corporate value and avoid costly litigation. Healthcare employers that implement TRAs with overly restrictive terms could be found to be in violation of state and federal laws and may be required to pay restitution to impacted employees.
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