I have to pay money to leave the company? Ask the lawyer

profile photo
By Yosi Yahoudai
Founder and Managing Partner

I have been with this company seven months. They provided some training and after passing certain exams, I was given a title and raise. Another job has now come my way, with more pay and better benefits, and closer to home. I gave notice, at which point I was told I have a $20,000 payback obligation because I am leaving in less than two years. Is that legal? I do not recall even agreeing to any such term.

K.L., Culver City

Ron Sokol

What you are referring to is known as “Training Repayment Agreement Provisions,” aptly abbreviated “TRAPS.” They date from the 1980s and were largely focused on high paying positions. The rationale being the company invests a lot of time, effort and money into bringing an employee along, so the investment should not go without some reimbursement, if he or she leaves sooner than otherwise. In the past few years, TRAPS started to become a bit more common. The U.S. Justice Department, Consumer Finance Protection Board and the Federal Trade Commission all began to look into them, because they may prevent skilled employees from finding new, better employment.

Research indicates the FTC issued a rule in April that restricts the companies it regulates from requiring workers to enter non-compete and functionally similar contracts. This ban includes TRAPS and other “stay-or-pay” agreements, where the upshot is to inhibit an employee from seeking or accepting other work, or starting a business after employment.

California has a well-established policy disfavoring non-compete agreements. This can apply to terms of employment that are of such nature the employee’s mobility (in other words, the ability to obtain another job) is impeded or seriously discouraged. You indicate you never agreed to the provision. Has the company shown you that you did?

I think you probably have the better argument. It would be prudent, however, to consult with a lawyer if your level of concern is such that you either will not leave, or will be unduly apprehensive once you do. Also, take a look at the information below under “Notice.”

I work for a company that is headquartered in another state, but was hired here in Southern California and work in the Century City branch. There is a non-compete in my contract that I guess is legal in the other state. Is that enforceable here?

M.C., Glendale

Any non-compete agreement that is void under California law is unenforceable here regardless of where and when the contract was signed. Further, employers may not seek to enforce a prohibited non-compete regardless of whether it was signed and the employment was maintained outside of California.

Notice

By law now, California employers are required to provide written notice to current or former employees (who were employed at any time after January 1, 2022), and who are based here, if they are subject to non-competition agreements that are unenforceable under California law.

Ron Sokol has been a practicing attorney for over 40 years, and has also served many times as a judge pro tem, mediator, and arbitrator.  It is important to keep in mind that this column presents a summary of the law, and is not to be treated or considered legal advice, let alone a substitute for actual consultation with a qualified professional.

author photo
About the Author
Yosi Yahoudai is a founder and the managing partner of J&Y. His practice is comprised primarily of cases involving automobile and motorcycle accidents, but he also represents people in premises liability lawsuits, including suits alleging dangerous conditions of public property, third-party criminal conduct, and intentional torts. He also has expertise in cases involving product defects, dog bites, elder abuse, and sexual assault. He earned his Bachelor of Arts from the University of California and is admitted to practice in all California State Courts, and the United States District Court for the Southern District of California. If you have any questions about this article, you can contact Yosi by clicking here.

(source)