Biden DOL Praised for Historic Suit Over Using Debt Threat to Stop Workers From Quitting

Workers' rights advocates are applauding the Biden administration this week for filing a historic lawsuit against a Brooklyn-based healthcare staffing agency for coercive contracts that allegedly violate federal labor law.

Biden's Department of Labor (DOL) says in a complaint filed against Advanced Care Staffing (ACS) and CEO Sam Klein in the U.S. District Court for the Eastern District of New York that "in flagrant disregard" of the Fair Labor Standards Act (FLSA), the company "has entered into contracts purporting to require employees to complete at least three years of full-time work for ACS in order to retain their wages."

"The contracts warn employees that if they leave ACS's employ before three years' time, they will face ACS and its lawyers in an arbitration behind closed doors, where ACS will demand that employees kick back much of their hard-earned wages—including wages to which they are entitled under federal law," the complaint continues.

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"Under this scheme, the pay that ACS promises its employees may be converted into nothing more than a loan that employees must repay with interest and fees, leaving some employees with no compensation at all, much less the wages required by the FLSA," the document adds. "The FLSA prohibits an employer from holding employees' wages hostage, allowing employees to keep their wages free and clear only if employees remain in the service of their employer."

The DOL, led by acting Secretary Julie Su, aims not only to end this "unlawful conduct" but also "to recover unpaid wages and liquidated damages due to the former employees from whom ACS has already initiated arbitrations, and to restrain defendants from withholding unpaid wages from their former employees."

Solicitor of Labor Seema Nanda reiterated in a statement Monday that "federal law forbids employers from clawing back wages earned by employees, for employers' own benefit."

"Employers cannot use workers as insurance policies to unconditionally guarantee future profit streams. Nor can employers use arbitration agreements to shield unlawful practices," Nanda said. "The Department of Labor will do everything in its power to make sure employees are being paid their hard-earned wages, and to safeguard them from these types of exploitative practices."

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Bloomberg last September reported on Benzor Shem Vidal, a nurse who immigrated to the U.S. from the Philippines and took legal action against ACS for forcing him to work in "brutal and dangerous conditions," including simultaneously caring for 40 patients.

As Bloomberg detailed:

Under Vidal's contract, Advanced Care Staffing could sue him in arbitration for damages if he quit within three years of starting work—and make him pay the legal costs, according to the complaint in federal court in Brooklyn. The conditions were so onerous that they violate human trafficking laws meant to protect people from being exploited for labor, Vidal said.

"Mr. Vidal believed it was impossible for him to provide adequate care to patients but was also terrified to resign," his lawyers wrote. "He knew that his contract with Advanced Care Staffing purported to allow the company to pursue legal action against him, with potentially ruinous financial consequences, if he decided to terminate his employment."

Advanced Care Staffing did not immediately respond to an inquiry. The company has placed thousands of employees at facilities in New York and surrounding states, according to its website.

The DOL complaint lays out his experience over several pages and concludes that "defendants have a policy and practice of entering into contracts with employees with identical or substantially similar contract provisions to the 2022 contract with Vidal."

Celebrating the new case against ACS, Towards Justice executive director David Seligman declared Tuesday that "DOL's action against predatory stay-or-pay contracts sends a monumental message to employers: Obey the law or face repercussions."

"A fundamental premise of our labor laws is that employers pay workers, and not the other way around," said Seligman. "This lawsuit builds on a multiagency effort from the Biden administration to curb coercive contracts that rob workers of bargaining power. We look forward to what's next."

As Seligman noted in a series of tweets, other actions include the Consumer Financial Protection Bureau (CFPB) last June launching an inquiry into practices and products that may leave workers indebted to their employers, and the Federal Trade Commission (FTC) in January proposing a ban on noncompete clauses.

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After noting that the DOL is taking on the ACS case as a minimum wage fight, Seligman said another important aspect is the department's allegation that the company's "arbitration requirements violate federal law too, not just because the employer is attempting to shield unlawful practices but also because the arbitration requirement itself shifts costs onto workers."

The DOL complaint states that ACS's arbitration and contract demands "have an impermissible chilling effect on their employees' ability to effectively vindicate their federal statutory rights, including the protection to be free from an unsafe or hazardous workplace, and to obtain unpaid wages due."

Student Borrower Protection Center senior policy adviser Chris Hicks on Tuesday stressed that such problems stretch far beyond one company, saying that "whether it's training repayment agreement provisions (TRAPs) or stay-or-pay contracts, employers are using debt as a tool of coercion to force workers to stay in low-paying, unsafe jobs."

Hicks also highlighted that "the Biden administration has been strengthening its whole-of-government approach to ensure workers are able to fully and freely exercise their rights—including their right to depart without the looming threat of debt."