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April 14, 2023

“Unconscionable” Debt-for-Training Scheme Funnels Low-Wage Tech Workers to Fortune 500 Companies; Class-Action Lawsuit Seeks to Void Predatory Training Repayment Agreement Provisions

VIA THE STUDENT BORROWER PROTECTION CENTER: Last night, a former employee filed a class-action lawsuit against a tech-training and employee-staffing agency, Smoothstack, Inc. (Smoothstack). This new lawsuit alleges that Smoothstack steals wages from employees and pushes them to sign predatory Training Repayment Agreement Provisions (TRAPs), putting them on the hook for tens of thousands of dollars in debt if they tried to leave or were fired from low-wage tech jobs working on projects for some of the largest corporations in the world.
Home » News » “Unconscionable” Debt-for-Training Scheme Funnels Low-Wage Tech Workers to Fortune 500 Companies; Class-Action Lawsuit Seeks to Void Predatory Training Repayment Agreement Provisions

Fri, 04/14/2023

VIA THE STUDENT BORROWER PROTECTION CENTER:

Last night, a former employee filed a class-action lawsuit against a tech-training and employee-staffing agency, Smoothstack, Inc. (Smoothstack). This new lawsuit alleges that Smoothstack steals wages from employees and pushes them to sign predatory Training Repayment Agreement Provisions (TRAPs), putting them on the hook for tens of thousands of dollars in debt if they tried to leave or were fired from low-wage tech jobs working on projects for some of the largest corporations in the world.

A copy of the complaint filed on behalf of former Smoothstack recruit and consultant Justin O’Brien by Outten & Golden LLP, Towards Justice, McGillivary Steele Elkin, and the Student Borrower Protection Center (SBPC) is available here.

Smoothstack promises to train tech workers to pursue careers as information technology (IT) professionals and place these workers at firms that include Accenture (NYSE: ACN), Verizon (NYSE: VZ), Johnson & Johnson (NYSE: JNJ), Morgan Stanley (NYSE: MS), CapitalOne (NYSE: COF), and Bloomberg.

“Using the tricks of the for-profit trade schools before it, Smoothstack is luring low-wage workers using false promises of rigorous training and a lucrative career in order to trap recruits in a modern-day indenture scheme,” said SBPC Managing Counsel Persis Yu. “Justin’s story should be a warning to giant corporations across the economy—dressing up age-old worker exploitation in a shiny tech-tinged wrapper won’t keep you out of court. Smoothstack’s use of debt TRAPs to discipline workers is coercive, cruel, and corrupt.”

According to the lawsuit, Smoothstack’s scheme relies on TRAPs to compel its employees to spend “4,000 hours” performing work that Smoothstack can bill to these “Fortune 500 companies,” which do not employ Smoothstack employees directly but instead contract out projects to Smoothstack. To get new workers to sign up, Smoothstack allegedly sold the “false hope” of a permanent career at one of these firms—a tactic reminiscent of the recruiting practices used by failed for-profit colleges like Corinthian Colleges, Devry University, and ITT Technical Institute.

“Smoothstack traps its workers at the start of their employment,” said Outten & Golden Attorney Hannah Cole-Chu. “Smoothstack locks these employees into work schedules they don’t control, with large periods of time at minimum wage, and Smoothstack blocks them from leaving for better jobs unless they pay a huge penalty of over $23,000 to win their freedom.”

Former Smoothstack employee Justin O’Brien, the named plaintiff in this lawsuit, alleges that Smoothstack pressured him to sign increasingly extreme contracts as he progressed through the firm’s training and job placement scheme. O’Brien further alleges that he was not paid any wages during the first three weeks of training, despite Smoothstack requiring him to work extremely long hours, including overtime hours. For the next five months of training, Smoothstack continued to require O’Brien to work extremely long hours, allegedly paying him only a minimum wage without any overtime.

At the end of his so-called “training” period, rather than facilitating permanent employment as advertised, O’Brien alleges that Smoothstack instead sold his labor to the unit of the global consultancy Accenture that performs work for the federal government and, when that assignment ended, paid him minimum wage while he waited indefinitely for the next one. Because of the TRAP, he was unable to seek out a better opportunity for fear Smoothstack would sue him for the amount of his debt, as it has done to several of its former employees.

“This case alleges that behind Smoothstack’s shiny tech facade, Smoothstack’s business model bundles together a wage theft operation with a predatory for-profit training program,” said Towards Justice attorney Rachel Dempsey. “Stay-or-pay contracts like TRAPs undermine the core promise of the labor market and let employers exploit workers with nowhere to turn.”

TRAPs are an increasingly prevalent form of “shadow student debt.” These predatory contracts are used by companies that span industries to exert power over workers, limiting mobility and suppressing wages. SBPC estimates that as many as 1-in-3 private sector workers are employed in sectors of the economy where major employers use TRAPs.

The complaint against Smoothstack alleges that the firm used a mandatory training program to exploit entry-level IT professionals and trap them in low paying jobs. The company’s tactics include:

  • Wage theft. Smoothstack allegedly fails to pay employees for work performed throughout a three-week training period, and for the rest of the six-month training period paid employees as little as $7.25 per hour for a 40-hour workweek–even though they had to work as much as 80 hours per week.
  • Predatory TRAPs. Smoothstack allegedly demands all employees sign one or more TRAPs requiring them to perform 4,000 billable hours of work (which would take at least two years) for Smoothstack’s Fortune 500 clients. If a worker departs before reaching 4,000 billable hours, the company requires workers to repay at least $23,875 in “training and placement costs.”
  • Bait and switch gig work arrangements with no path to permanent employment. Employees are allegedly assigned and paid by Smoothstack directly to perform contract work on behalf of Smoothstack’s Fortune 500 clients. When workers are not assigned to a specific client by Smoothstack, they are paid the minimum wage, which could be as low as $7.25 per hour. None of their hours during these waiting periods, which can last indefinitely, count towards satisfying the 4,000 billable hours required to escape the TRAP.

In addition to violations of the Fair Labor Standards Act, this lawsuit alleges that Smoothstack’s TRAPs are “unconscionable” and unlawfully penalize employees for leaving their jobs, and are thus prohibited by law in the Commonwealth of Virginia. This makes all TRAPs owed by all Smoothstack employees void or unenforceable, yet the company continues to require low-wage workers across the country to sign them in a high-pressure “take-it-or-leave-it” style—and sometimes sue them if they leave before the commitment period is up.

Background on Smoothstack

Smoothstack was recently awarded an $84 million subcontract from Accenture to support Accenture’s work on behalf of the U.S. Department of Education’s Office of Federal Student Aid—the division of the federal government responsible for administering the $1.6 trillion student loan system. Accenture’s work on behalf of the U.S. Department of Education recently grabbed headlines when Accenture incorrectly informed informed 9 million student loan borrowers that they were eligible to have their student loans cancelled.

Background on TRAPs

Earlier this year, the Federal Trade Commission took steps to ban TRAPs as part of an ongoing rulemaking related to non-compete agreements. This action follows an inquiry by the Consumer Financial Protection Bureau into so-called “employer-driven debt” including TRAPs. State lawmakers are also taking steps to ban these contracts under state law.

These recent government efforts also follow a wave of litigation filed by Towards Justice and the Student Borrower Protection Center, including high-profile class action lawsuits against giant pet supply retailer PetSmart and cargo airline Ameriflight.

Further Reading

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When McGillivary Steele Elkin LLP decides to take your case, it is because we believe there is an unacceptable workplace violation that has negatively impacted you or resulted in your employer paying less than what the law requires and which we have a reasonable chance of remedying. We recognize that meritorious claims should not go unremedied because of the level of a person’s resources.

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