The US Department of Labor has asked a federal court to stop hire-train-deploy practices by Virginia-based IT staffing provider Smoothstack.

Filed July 10 in the US District Court for the Eastern District of New York by the department’s Office of the Solicitor against Smoothstack and its co-founder Boris Kuiper, the complaint alleges that the employers prevent employees from leaving their jobs by requiring them to pay up to $30,000 if they leave Smoothstack before completing 4,000 hours — about two years — of billable work. This causes some employees to earn less than the federal minimum wage, a violation of the Fair Labor Standards Act, according to the complaint.

“Recruit-train-deploy — also commonly called hire-train-deploy — is a business model used by some staffing firms in which cohorts of job seekers are recruited and trained to prepare them for work at a client site,” explains Amy Horvat, SIA Research Analyst and author of the report The Recruit-Train-Deploy (Hire-Train-Deploy) Model. “Under this model, job seekers become employees of the staffing firm while they undergo their initial training period and subsequent deployment to a work assignment.”

The programs generally offer candidates free, paid training and guaranteed job placement.

“This is a very strong opportunity for workers who are looking to gain new, valuable skills, especially those who can’t afford to quit their jobs to change career tracks,” Horvat says. “However, this benefit to the workers is balanced by a lot of financial risk on the part of the staffing firms, who invest in the cost of the training and in the salary provided to workers as they gain new skills and then recoup that cost over a period of around two years. That’s why some companies such as Smoothstack ask workers who go through the program to sign contracts with repayment clauses.”

The case shows repayment clauses aren’t perfect solutions and come with their own problems.

“There are a lot of other strategies RTD providers use to help mitigate risk, but I think a very important one is candidate selection,” says Horvat. “Failure to ensure candidates are well suited to the work, able to handle the training and interested in the jobs they are performing can result in candidate attrition, lost investment and negative press. This is one reason why many RTD programs are even harder to get accepted to than Ivy League universities.”

However, Solicitor of Labor Seema Nanda asserts, “Federal law requires employers to pay employees for their work, not the other way around.”

“Our lawsuit alleges Smoothstack Inc. and co-founder Boris Kuiper brazenly disregarded the law by creating a system that traps workers in jobs through outrageous and illegal contracts,” Nanda said in a press release. “All employers should be on notice that the Department of Labor will use everything in its power to protect workers from employers who weaponize employment contracts to exploit workers and chill them from exercising their federally protected rights.”

In a statement to SIA, Kuiper said its policy of requiring repayment for certain training and relocation costs plays a crucial role in its efforts to support individuals in launching successful careers in the technology sector.

“Our policy is designed to cover the significant upfront costs we incur to help individuals gain the skills and experience necessary to secure their desired jobs,” Kuiper stated. “These costs include relocation, an intensive multi-month training, certification and establishing professional relationships with clients. Our model is intended to create opportunities for those who are either unemployed or working in low-wage positions, enabling them to obtain the skillsets to operate in high-value IT roles. This allows them to build sustainable and rewarding careers. For example, even Justin O’Brien, who is the original and main plaintiff, states in his complaint that prior to working at Smoothstack he worked ‘a low-paying job at a call center for nearly a year.’ After starting with Smoothstack, he gained the skills and was placed in a high-tech IT job as a software developer.”

Kuiper emphasized that the hire-train-deploy model Smoothstack uses is not uncommon in the industry.

“The majority of individuals we place transition from underemployment/unemployment to successful careers in tech, benefiting from the comprehensive support and investment we provide,” he said.

Kuiper also noted that the Fair Labor Standards Act claim concerning Smoothstack’s agreement related to the repayment policy was dismissed without prejudice in Virginia earlier this year.

“We are confident that our practices comply with legal requirements and are committed to defending our position,” he stated. “As this new lawsuit progresses, we remain dedicated to our mission of fostering career growth and development for our clients. We will continue to support our employees and ensure that our policies reflect our commitment to fairness and opportunity.”

Contingent workforce managers should adhere to basic risk mitigation practices no matter what type of contingent workforce service they engage, advises Stephen Clancy, SIA’s senior director, contingent workforce strategies, knowledge and research. One best practice is to check with your insurance broker whenever you engage a new type of contingent workforce management  or talent acquisition service, he advises. Does your current insurance cover the risks of recruit-train-deploy of engagements, for example, and if not, what insurance plan will?

“Basically, contingent workforce buyers need to decide if they are ready to manage the emerging employment and labor law risks with RTD engagements,” Clancy says.

The department’s Wage and Hour Division is conducting an ongoing investigation.