The U.S. Department of Labor has filed a lawsuit against technology staffing company Smoothstack, Inc. (“Smoothstack”) and its COO Boris Kuiper alleging they violated federal law by using predatory Training Repayment Agreement Provisions (“TRAPs”) and leveraging coercive contracts to silence workers in violation of the Fair Labor Standards Act (“FLSA”).
The lawsuit alleges that Smoothstack’s practices amount to “modern-day indentured servitude” and “trap employees in their job” by enforcing overly restrictive contract provisions that penalize employees if they leave the company and prevent them from participating in government investigations in violation of the FLSA.
The lawsuit follows a class action lawsuit filed against Smoothstack on April 13, 2023, alleging failure to pay minimum and overtime wages under the FLSA, as well as an individual FLSA retaliation claim. The plaintiffs are currently seeking to amend the lawsuit to add claims challenging the TRAP under the FLSA and state consumer protection law. The class action plaintiffs are represented by Outten & Golden LLP, Towards Justice, McGillivary Stelle Elkin LLP, and the Student Borrower Protection Center.
Smoothstack operates a staffing agency that lures entry-level IT professionals with promises of paid training and career advancement. According to the lawsuit, Smoothstack engages in numerous labor law violations, including requiring employees to work without pay for the first two to three weeks of employment, refusing to pay overtime wages, instructing employees not to record any hours worked over 40 in a workweek, and refusing to pay any wages at all beyond 40 per week.
Before they are hired, the lawsuit states, Smoothstack requires employees to sign an employment contract containing a TRAP. Under the TRAP, employees must complete 4,000 hours of billable client work to retain their earned wages. In addition, under the contract, employees are subject to broad confidentiality, non-disparagement, and non-disclosure provisions that restrict their ability to freely discuss their employment.
Moreover, Smoothstack’s employee handbook requires employees to immediately notify the company if they are contacted by a government investigator. The handbook also bans them from providing any information to any outside party in connection with a lawsuit or government investigation unless compelled by law.
If employees resign or are terminated before completing the 4,000 billable hour requirement, or if they breach their employment agreement, Smoothstack has demanded a penalty of up to nearly $30,000 representing supposed training costs and lost profits. This practice violates the FLSA by reducing employees’ wages below the federal minimum wage and overtime rates, according to the complaint.
When employees have resigned or been terminated for cause, Smoothstack has threatened to sue them, and compels them to sign a strict separation agreement that further chills them from speaking out about their employment with the company, the complaint alleges. Smoothstack has routinely made good on its threats: the lawsuit outlines three examples of Smoothstack suing its former employees and seeking to recoup more money than the employees earned during their employment with the company.
“This complaint reaffirms much of what we’ve already alleged in our earlier lawsuit against Smoothstack,” said Jahan Sagafi, partner at Outten & Golden LLP. We and our clients believe that TRAPs are predatory and must be stopped. We are thrilled the Department of Labor has decided to step in and help put an end to these exploitative employment practices.”
“It is illegal to make workers pay to do their jobs,” said Towards Justice attorney Rachel Dempsey. “TRAPs, like those used by Smoothstack, force workers to stay in bad jobs, undermine their worker power, and violate minimum wage laws. We are pleased to see the Department of Labor file this suit to end Smoothstack’s illegal practice of trapping worker with coercive contracts.”
“With this lawsuit, the Department of Labor reaffirms what workers, labor advocates, and we have argued for more than a year: luring low-wage workers with false promises of rigorous training and future employment with Fortune 500 companies in order to trap them in coercive contracts, and threatening to sue them for up to $30,000 if they dare to leave the company for any reason at all, breaks the law,” said Winston Berkman-Breen, Legal Director at Student Borrower Protection Center. “These TRAPs are used to retaliate against workers exercising a core economic freedom—the freedom to leave—effectively subjecting them to what the Department accurately describes as ‘modern-day indentured servitude.’ We applaud the Department’s actions and call on Smoothstack to end this unscrupulous practice.”
The Department of Labor’s lawsuit is Su v. Smoothstack, No. 1:24-cv-04789 in the U.S. District Court for the Eastern District of New York. A copy of the complaint can be found here.
The class action is Justin O’Brien v. Smoothstack, Inc., No 1:23-cv-00491 in the U.S. District Court for the Eastern District of Virginia. A copy of the complaint can be found here.
The class action plaintiffs are represented by Jahan C. Sagafi and Courtney J. Hinkle of Outten & Golden LLP, Rachel W. Dempsey and David Seligman of Towards Justice, Persis Yu and Khandice Lofton of Student Borrower Protection Center, and Molly Elkin and Rachel Lerner of McGillivary, Stelle & Elkin LLP.
