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At a traditional company that pays for your continuing education and an advanced degree, you'll automatically get a pay raise once you get it because degree holders are on a different pay grade. I thought it was funny, that the company would pay for your school, just so they can pay more later.
But it actually makes a lot of sense. The opportunity for education is part of your compensation at the lower level, and employees will potentially take lower pay or worse conditions for this opportunity. But once you're more valuable on the job market, you'll automatically get more pay.
Of course, if you really want indentured servitude, I believe that clawback provisions on training costs are legal. Simply write a contract that throws the shackles on, though you'll have to be careful that the employees might simply say no and keep coasting on their old roles. https://www.business.com/hr/trap/
Theoretically legal? Yes. Practical? No, not really. You might as well put a sign out front that says "This place has high turnover. It sucks to work here and you could easily make more elsewhere." In a tight labor market all that's going to get you is people who need a job so badly that they couldn't imagine just leaving after a year anyway. In a tight job market it's probably not necessary in any event.
From a legal perspective, if I'm a company looking to hire someone subject to one of these, I'm considering two options:
Hire the person and assume the old company won't enforce the agreement. This is the easiest thing to do, though it leaves open a lot of uncertainty. But agreements don't enforce themselves, and it's going to cost the old company a lot of money to try to win this in court.
Offer the old company a couple hundred bucks to sign a release and threaten to sue for declarative judgment that the agreement is unenforceable if they refuse.
This is the more aggressive strategy, but it throws down the gauntlet early. It says "we don't think this is enforceable and we dare you to enforce it". I could argue unenforceability on a number of theories. Now, if the old company paid a third party vendor for classes or other training, I'd probably just pay up, but if they're trying to say the employee owes them ten grand for normal internal training then I'd argue that the clawback provision is intended as an illegal penalty clause to prevent the employee from leaving the company. The idea being that the training is given to me in consideration of remaining at the company for a certain period, and that by leaving the company I breached the contract and have to pay damages. Except the company can't prove damages to an amount certain, so in anticipation of this the parties have agreed upon damages at the formation stage.
The problem with this is that legitimate liquidated damages clauses have to be based on a reasonable approximation of actual damages, in this case, a reasonable approximation of training costs. Doing this requires putting all kinds of fun stuff out there like training guidelines, salaries of employees, estimates of how much the company is making per employee, etc. Of course, I'm requesting all of this stuff in discovery, and they can fight me over it if they want. An that's only one of the theories I'd put forth. Just giving it up is probably the easier option.
This is almost always the case. Or, as @phailyoor mentioned, continuing education/advanced degrees. They're often doing things like tuition reimbursement programs.
This definitely creates some messed up incentives, because if you can, say, "partner" with a separate training company who is really just doing the stuff you'd be otherwise doing, then you can implement clawbacks for things you couldn't otherwise. Might cost a bit more up front, but you might be able to make it back on the employee retention. And I'm sure some big companies would be happy to set up basically fake "separate" training companies that aren't really separate and dare you to try to prove it.
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I work for a company that doesnt wipe its own arse without government approval signed in triplicate, as the saying goes, and we have something like this: if you get a degree with the company contributing money, you have to stay at least one year after completion, or you owe all that money back. Seems very reasonable.
I think it only applies to degrees/university courses, though, not other generic training/certificate opportunities (i.e. if I get reimbursed for getting my Project Management Professional certification, it doesnt matter if I leave the very next day after the reimbursement shows up in my account; I don't owe a dime of it back).
That doesn't seem very reasonable because the company gets to harm you in arbitrary ways for the next year as long as the harm caused to you is not greater than the value of the education.
If they arbitrarily harmed a worker then the worker could do the bare minimum. Workers can treat employers poorly too. Do a shitty job, don't document anything, "actually I'm busy this weekend", quit suddenly without a 2 week handoff period after the clawback period is finished.
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I mean, by that logic it isn't reasonable for a company to have a 1-year reimbursement requirement for paying costs for you to relocate, either.
Yes. Actually the relocation is worse, because not only are there dollar costs to relocate, there are other costs.
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Hlynka-watch. Multi-agent environment.
Employees think about their situation and make choices, too. If they think you're starting to treat them worse, they'll definitely start looking. Decent chance they'll get someone to pay off the clawback, or at least enough of a raise to overcome whatever delta is left.
Plus, when you start treating them poorly, it's not just a direct monetary thing. It's an emotional thing, which is often highly valued alongside money. That is, say that they would owe you $10k. You imagine that you're going to only arbitrarily harm them by $5k somehow. But their resentment is worth $7k to them, so they'd even be willing to eat the $10k and make a lateral move elsewhere. (In the same vein, good will and belief that they know you are a decent employer compared to the unknown elsewhere is a huge reason why people often stay at companies even if they think they could eek out a bit more money elsewhere.)
On top of that, they're likely to be less productive, which is a pure harm for the employer. Especially with only a year clawback (I don't know why, but it does seem like clawbacks tend to be only 1yr, while incentives are more likely to vest in 3yrs). Pretty much as soon as they get a whiff of you treating them more poorly in that time, it's easy for them to go into "coasting" mode, start looking for other work, and think, "I'm only going to stay here until the 1yr mark if I can find any other offer." I know of one guy (not where I work) who I don't even think was treated badly, wasn't even training-related, but he got a signing bonus with a 1yr clawback, dropped his resignation on exactly the one year and one day mark. I have to imagine that a good chunk of that time, he was hardly even trying to contribute to the company. He knew what his plan was, and he went through the motions that he had to go through.
Harming people in arbitrary ways is usually negative sum, and any business that lets too much of that creep in is likely to end up doomed sooner or later. You would really need a surprisingly good business case for how you're actually going to extract additional value by treating them poorly during something like a clawback period.
Businesses that harm employees in arbitrary ways usually do so either
Correct. There are all sorts of dysfunctions that happen in business. Generally, the businesses with more of those dysfunctions fail more. None of those are what you had implied by "the company gets to harm you in arbitrary ways". Now, you're saying that there's just a background of some companies harming people in arbitrary ways, which has nothing else to do with the topic at hand. Presumably all of those things occur regardless of whether you get a degree paid for by the company. Do you think that somehow choosing to not get a degree paid for by the company stops those three things? If so, how?
...would you even dismiss giving someone a raise on the same grounds? "Eh, raises seem sus, because then they can arbitrarily harm you by slightly less than that much..."
It stops it because if you don't have to pay something back to the company, and the company mistreats you, you will leave. If you do have to pay the company, you won't leave unless the harm caused by what the company is doing to you is greater than the amount that you have to pay back.
I suppose technically that isn't arbitrary because it's not infinite, but if the amount you have to pay back is big, so is the harm that the company can get away with doing to you.
If the company gives you a raise, and then harms you, that isn't going to stop you from leaving, unless the raise is to an amount above market rate.
How about deferred bonuses? ...how about just annual bonuses, where you typically expect a significant sum, such as in the financial industry? I'm really trying to figure out the nature of your problem.
...how about penalty clauses in many other contracts? When you're doing M&A, you often agree to something like, "...and if I pull out of the deal for anything other than [acceptable reasons], then I'll have to pay you a penalty." In real estate or other transactions, people often put money down in the same sort of way, basically just pre-paid. Are all these things absolutely terrible, because then the counterparty will just arbitrarily harm them? Why have they stuck around so long, even when there are sophisticated (and possibly well-capitalized) parties on both sides of the transaction?
The problem with the employment contract is that the employee can't leave the job without losing money, and therefore the employer can harm the employee in ways that the employee could otherwise avoid by leaving the job.
There isn't anything similar to this for most penalty contracts. You could sell someone a house and arbitrarily harm them, let's say by shooting their dog, but refusing to follow through on the house contract won't save their dog, while leaving a job does save you from on-the-job harm.
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But even this is not sufficient to guarantee employee retention: the new employer could just offer to pay the employee’s clawed-back training costs when he leaves the old employer, perhaps with some clawback provisions of their own.
Indeed, this is how a lot of young Singaporeans in Big Tech got their start: they went to elite American universities to study CS on the (Singapore) government dime, but were obligated to go back and work in the civil service for a period of some years or else repay the cost of their education. FAANG was all too happy to foot that bill (with some strings attached, naturally) in exchange for that sweet, sweet engineering talent.
Well, of course. This is what buyouts are for. If I am a talented football coach and some small school offers me a job for $200k/year for 4 years and I go 12-0 and win a D2 national title, and the next year USC wants to hire me for $10 million/year that is how the cooky crumbles. What my small university should have done is put an appropriate buyout into my contract, say a couple million dollars, such that they can now basically pay the next 10 football coaches using my buyout money.
The downside is that if I suck, they still pay me. This is what companies in tech (and frankly many places) dont want to do and is what the OP is describing. They want a 1 sided agreement where if I suck I get fired and if I am awesome I get no raises. That is silly.
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Yep. It's pretty common practice at some levels for people to regularly update their personal accounting of these things (including things like not-yet-vested 401k/ESPP/etc.). You want to know what your expected comp actually is over time. You want to have a process worked out for how to compute all those things when necessary (maybe even so you just have an approximation in your head already), so you can negotiate quickly if anything comes up rather than having to scramble to pull it all together at the last minute. If you've really got value and a new company will give you that bundle of money up front to get you, it really is incumbent on your current employer to compete to keep you.
Another pretty simple thing that is done (rather than a claw back, allowing them to go above and beyond just the mere cost of the education or whatever), not always tied to a degree, often in the form of something like stock options, is just a delayed bonus. "You just got this degree. We'd like to offer you a big bonus. Only catch is that we sign the paperwork now, but it doesn't vest for three years." That way, it's harder for a competitor to plunk down enough money to take them, they plausibly do get compensated in accordance with their increased value, but you only have to pay out if they actually stick around and give you another three years of value.
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