by Chris Way

The Federal Trade Commission had ended non-competition agreements (or had they?). Faced with this new reality, what was an employer to do? “How could an employer protect itself from the burdens of losing valuable know how and training?” the Admiral pondered from the bridge of his flagship. Suddenly the answer became clear.

“It’s a TRAP!” Admiral Ackbar bellowed. Yes, he was definitely thinking of this and not any Imperial fleet or impending space battles. (Don’t look into that . . .   moving on!) It was a long time ago in a galaxy far, far away, but somehow the sage admiral in a brilliant moment of clairvoyance told us exactly what we needed to know today.

As a business owner that has built valuable know how, and dedicated time, money, and resources to training your team, how can you protect yourself from losing the value of these without a noncompetition agreement?

Remember, “It’s a TRAP”.

Introducing TRAPs

A TRAP might sound rather sinister for a legal tool. But done right, these are perfectly above board and non-threatening. TRAP is a moniker covering a few different arrangements. Whether referring to a training reimbursement agreement provision, a tuition reimbursement agreement, or a training repayment agreement, the acronym refers to an arrangement where an employer agrees to train or cover the cost of training or education. In exchange, the employee then agrees to reimburse the employer if the employee leaves the company within a specified period after completing the training. The result can be a win for both sides.

What are Training Reimbursement Agreement Provisions?

The goal of a training reimbursement agreement provision is to protect an employer’s investment in their employees’ professional development. When an employer invests in an employee’s training or education, they reasonably expect to benefit from the employee’s newly acquired skills and knowledge through the employee’s services performed for or on behalf of the employer. However, if the employee leaves the company shortly after completing the training, the employer may not have the opportunity to realize the return on their investment.

While good employers do teach and train their teams, they do so with the expectation that the employee will use this training in their services for the employer. If the employee leaves before realizing any benefit of this training, the employer has lost the time and money spent on training, the income that would have resulted from the training, and has to now find and train someone else.

A TRAP can help reduce the risk of this and provide both sides with a win. The employer receives assurance that the employee won’t abscond with the benefits of the employer’s training without giving the employer a chance to benefit from that training, and the employee gains valuable education that allows them to advance their skill in their profession.

How Training Reimbursement Agreement Provisions Work

When you decide to provide training or education for an employee, you will typically present the employee with a training reimbursement agreement. TRAPs typically state that if an employee voluntarily leaves the company or is terminated for cause within a specified period after completing the training, they must reimburse the employer for a portion or all of the training costs. Key terms for a TRAP include:

1. The cost of the training
2. The duration of the training
3. The length of the repayment period (the time during which the employee must remain with the company to avoid reimbursement)
4. The amount or percentage of the training costs the employee must reimburse if they leave within the repayment period
5. The terms under which the repayment obligation is triggered (e.g., voluntary resignation or termination for cause)

If the employee accepts the terms of the agreement, they will sign the contract and proceed with the training. If the employee leaves the company within the repayment period, they will be obligated to reimburse the employer according to the terms of the agreement.

Situations Where Training Reimbursement Agreement Provisions are Helpful

Here’s a few examples of situations where TRAPs are particularly helpful:

1. When training is expensive. When an employer invests a significant amount of money in an employee’s training, it’s reasonable to want to ensure they can recoup their investment if the employee leaves earlier than anticipated. A TRAP protects the employer from being potentially used as a paid internship or vocational program.

2. When training is lengthy. If the training takes some time, the employer may want to ensure the employee remains with the company long enough to apply their new skills and knowledge.

3. When skills acquired are in high demand. If the training provides the employee with highly sought-after skills, the employer may be concerned that the employee will be poached by competitors offering higher salaries or better benefits. This one is particularly damaging because the employer would have given the competitor a stronger employer, making the competitor stronger, and done so without the competitor having to make any investment in becoming stronger.

4. When the employee is new to the company. Employers may be more inclined to use training reimbursement agreement provisions with new hires, as they have not yet formed any bond with the company that would indicate any lasting relationship is in the cards.

Using Training Reimbursement Agreement Provisions for Employer-Provided Training

TRAPs are commonly used to secure reimbursement for training by third parties. Think of the tuition paid to enable a team member to attend a seminar or workshop. However, employers can use training reimbursement agreement provisions for training they directly provide to their employees as well. This is particularly common in industries where employees require specialized training to perform their job duties.

When an employer provides in-house training, they may still require employees to sign a training reimbursement agreement to protect their investment in the employee’s development. The terms of the agreement may be similar to those used for external training, with the employee agreeing to reimburse the employer for a portion or all of the training costs if they leave within a specified period.

Legal Requirements Concerning Training Reimbursement Agreement Provisions

Training reimbursement agreement provisions are generally enforceable. However, employers must ensure that the terms of the agreement are permitted in their state and, even if allowed, are not so onerous that they effectively block the employee from leaving the company.

The FTC’s Non-Compete rule addresses TRAPs. While the FTC has declined to either categorically ban TRAPs or exempt them from any level of prohibition or regulation, TRAPs are on the FTC radar. The FTC specifically noted that TRAPs could have negative effects on the competitive working conditions the FTC wants to promote. So be wary. When a TRAP is so onerous that it functions as a disguised method of preventing a worker from accepting other work or starting a competing business, the TRAP is less likely to withstand scrutiny. Avoid TRAPs that create adverse consequences for the employee disproportionate to the value of the training provided. Those TRAPs are likely to be a problem for an employer.

Conclusion

Training reimbursement agreement provisions are a valuable tool for employers who invest in their employees’ professional development. By requiring employees to reimburse the company for training costs if they leave within a specified period, employers can protect their investment and ensure they receive a return on the resources they allocate to employee training.

The best TRAP is about protecting you.  A TRAP is not meant to stop employees from leaving. It’s meant to make sure an employer isn’t taken advantage of by investing in training only to have that investment used for someone else’s benefit. Restrictive, punitive measures are not the best way to secure your team’s loyalty. Creating an environment they want to be a part of and feel they can achieve personal goals in is a much better method. Investments in your team’s development, and protecting that investment through a TRAP, can be a way of balancing these.

As you try to find the right balance for your company and your team, the team at Way Law is here to help!