Yves here. This is a particularly labor brazen abuse. One hates to say it, but normally only undocumented workers are exploited this way, although some H-1B have been accused of serious labor exploitation, threatening workers with being sent home (and losing the pay that they or their families presumably need) unless they accept sweatshop conditions and resulting reduced hourly pay. There was an upsurge of reports of this misconduct before the Trump H-1B visa “reforms” but we warned then that tech companies could readily shift to using L-1Bs.<sup.1
One has to give props to the Department of Justice for pursuing what looks like a very bad actor, despite it being neither well known nor the total dollars at issue being really large. Please also see the DoJ press release and filing.
By Claudia Irizarry Aponte. Originally published at THE CITY on July 17, 2024
A Virginia-based IT staffing agency is accused of “trapping” its employees in their jobs and demanding payments of up to $30,000 if they leave before completing 4,000 hours of work, according to a lawsuit by the U.S. Department of Labor filed in the Eastern District of New York last week.
On its website, Smoothstack promises to train tech workers then place them in federal agencies and prestigious Fortune 500 firms such as Morgan Stanley, Verizon and Bloomberg.
The company and its co-founder Boris Kiuper are accused of pushing employees to sign predatory Training Repayment Agreement Provisions, known as TRAPs, that put them on the hook for tens of thousands of dollars if they tried to quit or were fired from their jobs, and of retaliating against whistleblowers.
Based in Alexandria, Va., Smoothstack employs a sizable number of workers in Brooklyn, Queens, Staten Island and Manhattan, according to the complaint. Several of its major clients, none of whom are parties to the lawsuit, are also based in New York.
Smoothstack did not respond to THE CITY’s request for comment. Morgan Stanley, Verizon and Bloomberg also did not respond to THE CITY’s requests for comment.
As of April 2024, Smoothstack has received more than $90 million in a subcontract from Accenture to support its work on behalf of the U.S. Department of Education’s Office of Federal Student Aid. The US Dept. of Education did not immediately respond to THE CITY’s request for comment.
The DOL is seeking an injunction barring Smoothstack and Kuiper from continuing to demand training repayments from employees, which it claims employees’ wages below federal minimums in a scheme “akin to modern-day indentured servitude,” according to the lawsuit. It also seeks to bar the company from retaliating against employees who file whistleblower complaints.
Labor solicitor Seema Nanda said in a statement that Smoothstack “brazenly disregarded the law by creating a system that traps workers in jobs through outrageous and illegal contracts.”
According to the lawsuit, Smoothstack hires tech workers for a period of two years divided in three stages: First as unpaid trainees for two to three weeks, then as trainees earning the minimum wage of whatever state they reside in, and finally as salaried employees placed with a Smoothstack client, where they earn $60,000 to $70,000 annually.
Smoothstack requires recruits to sign agreements in order to advance through each phase of employment, but does not disclose the TRAP agreements until after an employee has accepted an offer of full-time paid employment with a client, according to the lawsuit.
Employees who leave the company before they have fulfilled their 4,000 hour billable commitment period — about two years — are liable for $24,000 to $30,000 to the companies depending on their time of employment. The TRAP is triggered whether the employee resigns or is terminated for cause before fulfilling the 4,000 hour requirement or if they breach any other part of the commitment.
The DOL further charges that Smoothstack does not pay overtime hours for trainees, who can work as much as 84 hours in a week, and instructs employees not to record hours worked over 40 in a workweek while they are earning the minimum wage.
It is the second lawsuit against Smoothstack in as many years charging the company with violating federal minimum wage standards. A former employee in Colorado filed a class-action lawsuit in federal court in Alexandria, VA. last year, accusing the company of underpaying trainees and continuing to do so even when they start working at one of the company’s clients.
The former employee, Justin O’Brien of Colorado, is represented by lawyers of the Student Borrower Protection Center (SBPC) and Towards Justice.
Winston Berkman-Breen, SBPC’s legal director, applauded the DOL’s suit, saying it reaffirms their arguments that “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.”
Well that’s particular asshole behavior even by corporate America asshole behavior standards. It’s like someone suggested lowering the bar and a smart whippersnapper took the challenge. I’d suggest it’s unreal but then we permitted for profit colleges to persistently rip off their student enrollment. Science fiction has a good track of prediction.