This article explains the allegations in the Smoothstack lawsuit as well as the related controversy surrounding employee repayment agreements.
One controversy that has recently rocked the tech industry involves a lawsuit against Smoothstack, a training and staffing company in the tech space.
The core of the allegations involve repayment agreements, employment contracts which themselves have been making headlines and drawing the ire of both federal and state lawmakers.
Filed in 2023, the Smoothstack lawsuit is still in its early stages. But who is Smoothstack, and what does the lawsuit allege?
In this article, we'll explain who Smoothstack is, what drew them into the spotlight, and the latest updates relating to the lawsuit.
Smoothstack is a tech-training and employee-staffing agency. The company, which is based in Virginia, recruits individuals who are interested in beginning a career in information technology (or IT) roles.
Smoothstack attracts recruits through their offers of a training program and placement opportunities with the company's clients, which include Fortune 500 companies such as Accenture, Bloomberg, Capital One, Johnson & Johnson, Morgan Stanley, and Verizon.
Smoothstack is a notable player in the tech sector and staffs their consultants in a variety of huge tech companies. Smoothstack also recently received a subcontract worth over $80,000,000 from Accenture to support that company's work for the U.S. Department of Education’s Office of Federal Student Aid.
But the company has come under fire for its controversial Training Repayment Agreement Provision, called TRAP for short. According to the class action lawsuit against the company, Smoothstack's TRAPs dictate a penalty of over $20,000 if Smoothstack tech workers do not complete a mandatory minimum billable hour requirement before leaving the program.
According to the Federal Trade Commission (FTC), a TRAP is "a type of liquidated damages provision in which the worker agrees to pay the employer for the employer's training expenses if the worker leaves their job before a certain date."
In January 2023, the FTC proposed "preventing employers from entering into non-compete clauses with workers and requiring employers to rescind existing non-compete clauses." In the context of the FTC's proposed rule-making, the FTC called out TRAPs as "restrictive employment covenants" which can sometimes be so broad as to amount to non-compete agreements.
TRAPs affect a significant portion of the American economy. According to research, approximately ten percent of American workers are covered by a TRAP. Indeed, the FTC "estimates that the proposed rule would increase American workers’ earnings between $250 billion and $296 billion per year."
State lawmakers are also taking steps to ban TRAPs, such as in Pennsylvania and California.
So, what is the Smoothstack lawsuit about? In April 2023, a former employee filed a class action lawsuit in federal court in Viriginia which seeks to invalidate the TRAPs that Smoothstack employees are required to sign as well as to recover damages under the Fair Labor Standards Act (FLSA).
Specifically, the Smoothstack lawsuit "seeks unpaid wages and damages. . . for minimum wages, overtime wages, unlawful kickbacks on wages, and violation of the FLSA’s requirement that employers pay their workers wages 'free and clear.'"
The complaint goes into great detail about the specifics of Smoothstack's training program.
The crux of the description, though, is that the training program is long (six months) and strenuous, with allegations that trainees work as many as 80 hours per week, or even more, between instruction time and completing assignments.
Furthermore, Smoothstack allegedly does not pay workers at all during the first three weeks of the program and thereafter only pays minimum wage for a maximum of 40 hours per week, despite the longer hours that trainees put in.
Upon completing the training program, recruits progress to consultants but are still subject to the TRAPs. Smoothstack allegedly controls whether to deploy a consultant to a particular company. Consultants earn approximately $26-$31 per hour when on an assignment and minimum wage while waiting to be staffed between projects.
But because the TRAPs are presented on a "take-it-or-leave-it basis," Smoothstack employees are basically forced to remain with Smoothstack, according to the lawsuit, due to the $20,000+ penalty for resigning before completing 4,000 hours of billable client work.
The lead plaintiff in the Smoothstack lawsuit is Justin O'Brien, a former Smoothstack recruit and consultant. He seeks to represent himself and all similarly situated employees and former employees.
The complaint was filed by attorneys with the Student Borrower Protection Center, an advocacy group and "nonprofit organization focused on eliminating the burden of student debt for millions of Americans," according to their website.
As mentioned, the class action lawsuit was filed in federal court in a U.S. District Court for the Eastern District of Virginia. The Smoothstack complaint alleges violations of both state and federal law, with many of the core allegations aimed at purported violations of the Fair Labor Standards Act.
As mentioned, the lawsuit against Smoothstack was filed in April 2023. In May 2023, the lead plaintiff agreed to drop three claims from his lawsuit. Smoothstack agreed to waive the 4,000-hour requirement for Mr. O'Brien, who agreed in turn to dismiss related claims in the lawsuit under Virginia and federal law.
On May 12, 2023, Smoothstack filed a motion to dismiss the lawsuit. On May 25, 2023, the plaintiff filed an amended complaint, and Smoothstack, in turn, filed another motion to dismiss on June 6.
A hearing regarding the motion to dismiss was set for August 2, 2023.
If the Smoothstack lawsuit survives the motion to dismiss, more legal wrangling will likely ensue. For instance, arguments over whether or not the court should grant class certification are another key legal battle for class action lawsuits.
Should the sides ever come to an agreement, the case could also be resolved through a settlement, which is the most common outcome for lawsuits in the U.S., per statistics.
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