Episode 22: It’s a TRAP: What Is Replacing Noncompetes?

Summary

In this episode of the Reasonable Measure Podcast, Tim and Chris break down TRAPs, short for Training Repayment Agreement Provisions, and why they are showing up as noncompetes face increasing legal and public pressure. A TRAP is essentially a stay or pay contract: if an employee leaves, they may be required to repay the employer for alleged training costs, which can effectively discourage job changes even when the employee is not going to a competitor.

They explain that these agreements are starting to be litigated and scrutinized, with courts and regulators signaling that they may only hold up when tightly tailored. That typically means a short time window and repayment tied to real, documented training expenses like paid certifications, not inflated numbers designed to scare people into staying. Tim and Chris discuss examples that are drawing attention, including allegations involving PetSmart’s grooming program and a multistate settlement involving HCA healthcare that restricted enforcement in certain states. The takeaway is clear: TRAPs are a creative workaround, but they are risky, potentially short lived, and not a substitute for treating employees well and building retention the right way.

Takeaways

Transcript

Tim (00:12)
Chris, we’re back!

Let’s talk about TRAPs. When you first, when you sent me this, yeah, when you sent me this, I thought you were being kind of a jerk, but like, no, this is actually real. The deeper you get into it, you realize, you know, whoever came up with this acronym was just being a, you know, was being.

Chris Buntel (00:15)
It’s a trap. Had to start.

Tim (00:39)
Maybe kind of funny, I guess, if not ironic. So, let’s just get into TRAPs. A training repayment agreement provision. What the heck is this? And why should we care as trade secrets nerds?

Chris Buntel (00:54)
So.

Well, I mean, no one likes a trap and no one likes falling into them. But this is really a clever workaround of what’s happening with noncompetes. And we’ve talked about noncompetes along with lots of other people and how noncompetes are under tremendous pressure at federal and state level as restricting people’s ability to change jobs and feed their families.

Tim (00:59)
Right. 

Chris Buntel (01:26)
So there’s all this negativity directed at noncompetes, which I understand.

This, know, TRAPs are relatively new and in a way they’re kind of clever way of getting a similar result of a noncompete, but without being a noncompete. So the idea is that it’s basically you stay working for the company.

But if you decide to leave for any reason, you have to pay them back some money. So it’s often called a stay or pay contract. And the idea behind it is the employer in theory provides lots of training and time and effort to making you into a good new employee. And if you leave, they suffer damage.

And as a result, you have to repay them. So that’s kind of the concept. But for a lot of normal employees, they can’t afford to repay. So it’s very much trapping that employee with that employer. So again, it’s clever.

Tim (02:41)
Have they been litigated?

Chris Buntel (02:44)
They are starting to be litigated. And just like what we’ve seen with noncompetes, the courts are saying TRAPs are not inherently wrong, but they have to be tailored very specifically.

So you can imagine the courts would want to see a very short timeframe. Like if you said a TRAP lasts for 10 years or 20 years, the courts will say that’s ridiculous. They also want to see the training being directed towards actual training.

Ideally, training you in some specific skill or a specific certification that has an actual price tag. The employer should be able to say, “Invested $5,000 to send this person to a training class that resulted in a certification to make them a plumber, an electrician, a medical nurse, whatever.” It shouldn’t just say a big number.

Like shouldn’t say that if you leave, you owe $2 million. Like the courts say that’s ridiculous. Like you’re just making up a number that is so huge that you’re trapping people at the company. So it’s very much being handled. And again, these are, it’s a relatively new thing. So there’s not a lot of litigation.

But the idea is they need to be very tightly tailored to that employee and their situation and not feel like you’re being unfair.

Tim (04:26)
So I found two here, actually six cases on that Grok served up to me. And PetSmart’s back in the equation, gotta love it.

Scali versus PetSmart, 2022, ongoing class action lawsuit filed in California state accused PetSmart of using deceptive TRAPs in its grooming training program requiring workers to repay up to 5,500 bucks if they left before two years, even if they were fired. Plaintiffs allege violation of California Labor Code and Consumer Protection Act. The Colorado AG also filed a separate enforcement action against PetSmart on similar grounds. Yeah, that sort of starts to smell like noncompete.

And just, you know, maybe think about a different way to motivate your employees to stick around, you know?

Chris Buntel (05:30)
Well, and the idea behind it in some ways makes sense. If the employer truly had to pay money to get an employee certified or to send them to a class, and then the employee left two months later, the employer has incurred this cost. Asking that it get repaid in a short period of time doesn’t sound that bad.

Tim (05:45)
Sure.

Yeah.

Chris Buntel (06:00)
If you’re talking about like a five year, it’s similar to a vesting period, it’s not called vesting. If it were five years and a huge amount of money, the courts will say, “Come on, this is really functioning like a noncompete.”

And the interesting thing that you hinted on was it actually doesn’t matter where you go. So with a noncompete, you have to go to a competitor.

For a TRAP, all you have to do is leave. You actually could be unemployed at home and still fall into the trap. You don’t have to go.

Tim (06:38)
Or in the case of pets, you might get fired. Yeah, exactly.

Chris Buntel (06:41)
Yeah, well, could even get fired and go home and fall into the trap. So it functions in some ways similar and in some ways much broader than a noncompete. You might recall what noncompetes, it had to be a short time, had to be a competitor, had to be a similar role as what you were doing before. And it was indirectly a way of protecting trade secrets.

TRAPs are just kind of they feel a little vindictive or, you know, it’s very much a pair of handcuffs to try to keep employees, especially again, if the terms are considered unreasonable.

Tim (07:15)
Yeah.

Yeah. I mean, I think where I remember seeing this is like, you know, get law school paid for, uh, somehow, and then commit to go work in some place, right. For a number of years. And that’s like, that’s a great trade, right?

Um, you know, you get doctors into certain places that otherwise might be hard. Um, but you know, what you’re getting into, you know, it’s a big number. It’s a lot of training. You know, that’ll kind of, that’ll make sense.

Um, yeah, this just seems like, yeah, what’s the noncompete workaround? And then yeah, you’re right. If it is a big amount of money and the expectation is that you’re gonna be using that to the benefit of the company, yeah, I can imagine a one or two year commitment. Yeah, but the PetSmart thing is kind of ridiculous.

There’s another one, HCA. Now go ahead.

Chris Buntel (08:20)
Well, I was gonna say, when I think back on when I went to law school, so I did part time law school at night while I worked at the law firm during the day. They paid for my law school for four years. They paid for the patent bar exam, the state bar exam. Like it was a considerable cash outlay, but there was an expectation that I would stay for a number of years as an attorney, which I did.

Tim (08:37)
There you go.

Chris Buntel (08:50)
For me, it was a very good experience. Years later, there was another person who went through a similar program. None of it was in writing, unfortunately. But then right after he finished law school, he quit and then went to join another law firm. That was, I thought that was pretty unfair to the law firm, but there was no written contract. This is long before TRAPs were ever around, but.

Tim (09:16)
Right.

Chris Buntel (09:18)
Yeah, to me that felt unfair, but it was the employee being unfair, not the employer. So it can kind of swing both ways.

Tim (09:27)
Yeah, yeah, that’s one of those things you probably want to have a pretty deep understanding of the expectations or something in writing. But yeah, like I, I think I would be more worried about karma in that case than, you know, than the legal contract.

This as HCA, HCA healthcare 2025, one of largest US hospital operators settled claims for a three and a half million after allegations that it’s TRAPs unlawfully trapped nurses by requiring repayment of training costs if they left before a two year commitment. Case involved investigations by attorneys general of California, Colorado and Nevada who claim violation of consumer protection and labor laws. Settlement prohibited HCA from enforcing such agreements in those states and voided existing debts. So my guess is that’s kind of the direction that TRAPs are generally heading. And yeah, you’ll be able to find a state or two that will enforce them. I’d say this probably shouldn’t be part of your, your sort of thoughtful employee retention strategy seems a little very specific.

Chris Buntel (10:45)
Yeah, I think these probably won’t stick around very long, like probably within five or 10 years, no one will even be talking about them. Again, it was a creative workaround, so I’ll give people credit that far.

But it just feels like it’s going to be viewed very harshly by the courts. And to the extent that they do survive, there would have to be things like an actual receipt for a cash outlay was made by the company, or there’s an actual certificate that you received by going through the training that you use in your future employment.

But the idea of just having a TRAP as a way of retaining employees is probably better just to treat your employees well and give them a good job and a good manager rather than have them fall into a trap.

That’s my sage advice.

We’ll talk soon. Bye, Tim.