In October 2024, Jennifer Abruzzo, who was then general counsel of the National Labor Relations Board, banned stay-or-pay agreements, calling them inconsistent with employees’ rights under Section 7 of the National Labor Relations Act. Wiliam Cowen, who replaced Abruzzo after President Donald Trump took office, rescinded Abruzzo’s act on Feb. 14, citing the agency’s heavy workload.

The federal government's stance on the issue was further clouded when Federal Trade Commission chair Andrew Ferguson said on Feb. 26 that he would continue the Biden administration's priority of enforcing the FTC Act against anti-competitive labor practices, including contracts that require workers to pay in order to leave their jobs.

Workers who are subject to pay-to-stay terms are often also further pressured to stay on the job because they are not authorized to be in the United States or are dependent on their employer for their legal status, said Leon Rodriguez, a member of the immigration and compliance team at Seyfarth Shaw in Washington.

He said stay-or-pay contracts are not necessarily disfavored in all instances, but they “can be problematic because of the very serious, coercive and potentially usurious aspects of those practices.” Terms are coercive, Rodriguez said, when the amounts charged are far beyond the means of the individuals involved. And there are often other elements of coercion, such as a threat of violence, he said.

As for the federal government’s changing position on legality of such agreements, Rodriguez said “that’s something that businesses expect,” but that “doesn’t mean that it doesn’t cause a certain amount of chaos.”

Courts are seeing an uptick in litigation involving stay-or-pay allegations.

Construction firm Jacobs Solutions was hit with a suit on Jan. 27 in federal court in Denver over work conditions for crews who helped construct stadiums and hotels in Qatar for the 2022 FIFA World Cup. Temperatures routinely reach 118 degrees Fahrenheit in Qatar, and hundreds of construction workers died on the job, the suit claims.

The suit, a proposed class action, claims that Jacobs and a subsidiary, CH2M HILL, “chose to knowingly participate in, and profit from, ventures that exploited plaintiffs’ labor for construction projects for the 2022 FIFA World Cup.” According to the suit, “many workers could not return home until the end of their two-year contract unless they were willing to both lose their jobs and pay for their way home.”

The plaintiffs in that case are represented by Sparacino of Washington, D.C., and Olson Grimsley Kawanabe Hinchcliff & Murray of Denver. Debevoise & Plimpton represents Jacobs Solutions.

On Feb. 13, foreign labor recruiter Conexus MedStaff was hit with a suit under the Fair Labor Standards Act and the Trafficking Victims Protection Reauthorization Act in the Southern District of Texas. The case, filed by Berger Montague and Kirby McInerney, raises claims that Conexus abused the legal process and threatened a class of foreign healthcare workers with financial harm. The suit also contends that the defendant failed to pay wages. Counsel have not yet appeared for the defendant.

On Jan. 21, PruittHealth, Infinity Care Partners and other defendants were named as defendants in a civil RICO class action brought by foreign health care workers in the Middle District of Tennessee. The suit, brought by Milberg Coleman Bryson Phillips Grossman and DZ Law, accuses the defendants of deceiving class members into signing employment contracts that essentially amount to “indentured servitude.” The suit also brings claims under the Trafficking Victims Protection Act. Troutman Pepper Locke and Littler Mendelson represent PruittHealth and Holland & Knight represents Infinity Care.

Related: Employee retention remains a top priority for HR leaders in 2024, study finds

Stay-or-pay employment contracts, and disputes related to those contracts, have been on an uptick since the COVID-19 pandemic, which saw workers gain more leverage and employers try harder to get employees to stay on the job, said Jonathan Harris, an associate professor of law at Loyola Law School in Los Angeles and a Senior Fellow at the Student Borrower Protection Center.

Harris, who studies the intersection of employment law and contracts, was drawn to the study of stay-or-pay contracts because they seem to be growing in use just as employment noncompete clauses are falling out of favor.

“At a time where we're seeing more government scrutiny of traditional noncompete agreements, especially on the state levels, where more and more states are banning them or restricting them every year, it seemed like these contracts were being used as workarounds in a sort of whack-a-mole game,” Harris said.

Employers are getting more aggressive with the terms of such contracts, said Harris, who reported seeing cases of employers requiring repayment of lost profits by workers who leave in the first year or two on the job. Other contracts he’s seen require employees to give four months’ notice before they depart, or else pay for their replacement in instances where the employer only has to give two weeks’ notice if it fires someone.

“Companies are getting more creative and more aggressive with these contracts. I think that the more that they get before the courts in a challenging posture, the more we'll see courts ruling against these for all kinds of reasons because they seem so unreasonable,” Harris said.

The purpose of such contracts is not to withstand litigation, but to scare workers away from even thinking about leaving, Harris said.

An ACLU campaign to encourage the American Arbitration Association to refuse to enforce stay-or-pay terms in employment contracts is “a creative approach,” Harris said. The ACLU made the demand on Jan. 13 in the case of a nurse from India, who was subject to mandatory arbitration of a dispute with her employer, a company called MedPro Healthcare Staffing. The nurse was assigned to work in a hospital in rural Kentucky, where she claims she was subject to low pay and an abusive supervisor, but an AAA arbitrator upheld MedPro’s demand that she pay nearly $36,000 for resigning prematurely.

“I'm curious to see where [the ACLU challenge] goes. And if they do, in fact, determine that they will not hear these cases, I think that would go a long way in sending a signal to employers that maybe they shouldn't be having workers sign these contracts after all,” Harris said.