If you keep up with the corporate world and the legal landscape surrounding the same, then chances are you will come across the controversial Smoothstack Lawsuit.
One of the latest controversies to shock the tech world happens to be this particular lawsuit. For those unfamiliar with Smoothstack, it is a staffing and training company in the tech world. Here, the primary basis of the different allegations includes employment contracts and repayment agreements that have made it to the headlines of top publications, drawing the attention of both state and federal lawmakers.
First filed over a year ago in 2023, the lawsuit still happens to be in its initial stages. However, having said that, who is this Smoothstack? And what is the lawsuit all about – what does it allege?
So, in this blog, we will talk at length about Smoothstack, what brought it under the spotlight, and the latest updates associated with this particular lawsuit.
So, What Is Smoothstack? Company Background And Origins:
Smoothstack is basically an employee-staffing and tech-training agency. Based out of Virginia, the company recruits employees seeking a career in the IT (information technology) landscape. So, the company primarily attracts new recruits through its lucrative offers of placement opportunities and training programs.
To make things better, the placement opportunities typically include the clients of the company, including different Fortune 500 companies like Verizon, Morgan Stanley, Johnson & Johnson, Capital One, Bloomberg, and Accenture.
In addition, the company is a popular player in the technology landscape, placing its consultants and recruits in different tech roles in big organizations. Moreover, the company recently got a subcontract from Accenture that is more than 80,000 USD. This subcontract shows support for Smoothstack’s work for the Department of Education’s Office of Federal Student Aid in the United States.
If everything is so good, then what is the Smoothstack lawsuit all about?
So, the company has fallen under harsh criticism for its highly controversial TRAP policy or Training Repayment Agreement Provision. As per the lawsuit, this provision imposes a penalty worth over 20,000 USD on the company’s tech employees if they fail to complete the minimum billable work hours before exiting the program.
What Is A TRAP?
According to the FTC (Federal Trade Commission), a Training Repayment Agreement Provision or TRAP can be defined as “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.”
The Federal Trade Commission, in January 2023, proposed “preventing employers from entering into non-compete clauses with workers and requiring employers to rescind existing non-compete clauses.”
In this context (of FTC’s proposal), the Federal Trade Commission said that TRAPs were “restrictive employment covenants” that can become so broad that they can amount to non-compete agreements.
Moreover, TRAPs can impact a major percentage of the US economy. As per research, approximately 10% of US employees are covered by such provisions. In fact, the Federal Trade Commission estimated that “the proposed rule would increase American workers’ earnings between $250 billion and $296 billion per year.”
In addition, certain state lawmakers, like the ones in California and Pennsylvania, are also in the process of banning provisions like TRAPs.
Smoothstack Lawsuit: What You Need To Know?
So, what does the Smoothstack lawsuit talk about?
After January’s revelation in 2023, in April, an ex-employee of Smoothstack filed a lawsuit (class action lawsuit) in Virginia’s federal court. The lawsuit invalidates Smoothstack’s TRAPs, which all employees sign while joining. Moreover, the lawsuit also attempts to recover all the damages under the FLSA or Fair Labor Standards Act.
So, the Smoothstack lawsuit specifically “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.’”
Smoothstack Lawsuit: Allegations Faced
So, what are the allegations under the Smoothstack lawsuit? The complaint primarily goes into plenty of detail about the exact specifics of the company’s training programs. The crux of this description, though, is that the program is 6 months long and exhausting.
In fact, the lawsuit also featured allegations about how some trainees end up working around 80 or more hours weekly between going for training and finishing assignments.
Moreover, the company allegedly doesn’t pay its employees in the first 3 weeks of the training period. After the first 3 weeks, the company only pays a minimal ammon for only about 40 hours every week, in spite of the long, exhausting hours.
After completing the training programs, recruits go on to become consultants. However, they still continue to be covered by TRAPs. Moreover, Smoothstack also allegedly has control over whether or not to deploy a particular consultant to a company.
In addition, consultants only earn 26 USD to 31 USD per hour, approximately while they are on assignments. What makes matters worse here is that all consultants earn a minimum wage when they are in between projects and are waiting to be placed.
However, since the TRAPs all talk about a take-it-or-leave-it scenario, employees of the company have to stay with the company forcefully, as per the lawsuit. Allegedly, employees must pay a penalty worth 20,000 USD if they resign before finishing 4,000 billable hours at work.
Smoothstack Lawsuit: Nuts and Bolts
Justin O’Brien, an ex-recruit (and former consultant) of Smoothstack, is the leading plaintiff in the highly controversial Smoothstack lawsuit. O’Brien stands as a representation of not just himself but also other former and present employees of the company.
So, Justin O’Brien couldn’t have filed the lawsuit on his own. However, with the help of attorneys and an advocacy group, the Student Borrower Protection Center, it was possible to file the lawsuit.
According to the Student Borrower Protection Center’s website, they are a “nonprofit organization focused on eliminating the burden of student debt for millions of Americans.”
As discussed earlier, the Smoothstack lawsuit is a class action lawsuit that was filed in an American District Court for Virginia’s Eastern District. At a glance, the Smoothstack lawsuit alleges violations of both federal and state law, with several core allegations aiming at the purported breaches of the FLSA (Fair Labor Standards Act).
Smoothstack Lawsuit: How Is The Company Violating Federal Labor Laws?
Smoothstack Lawsuit violates the Workers’ rights and Federal Labor laws in multiple ways:
- Imposes Restrictive Employment Contracts: According to the plaintiff, the company bullied trainees and forced them to sign contracts accompanied by non-compete clauses and heavy repayment obligations for training expenses, limiting their career mobility and employment opportunities.
- Unfair Wages: As per the plaintiff, Smoothstack allegedly underpaid their employees by calling them trainees and choosing to pay below-industry wages while doing the same work as other employees.
- Deficient Working Conditions: Employees reported inadequate working conditions that included working while getting paid minimum overtime compensation and hourly wages.
- Illegal Kickbacks: In spite of Virginia’s federal court saying that the company’s TRAP is unenforceable and unconscionable liquidated damages penalty, Smoothstack is still litigating such agreements, particularly for extorting kickbacks illegally from employees to avoid getting sued.
- Economic Interference: While Smoothstack’s TRAP promised support for every employee’s professional development and offered assistance for job employment, employees claim that the company does not fulfill any such obligation, actively preventing them from getting employed outside.
Smoothstack Lawsuit: Latest Updates
As discussed, the Smoothstack lawsuit was first filed in April of last year. Then, in May, Justin O’Brien, the lead plaintiff, was fine with dropping three claims, while Smoothstack said ‘yes’ to waiving the 4,000 billable workable hour requirement for O’Brien.
After Smoothstack’s agreement, O’Bried further agreed to drop the related claims of the controversial lawsuit under federal law.
On 12th May 2023, the company filed for a motion dismissing the entire lawsuit, and on 25th May, O’Brien filed an amended complaint. In turn, on 6th June, Smoothstac filed for another motion dismissing the same.
On 2nd August, a hearing about the motion for dismissing the complaint was set.
So, if the lawsuit goes on to survive even after the motion to dismiss, then legal battles will continue to haunt the company. Now, if both sides decide to agree, then the case will get resolved easily through some settlement, which is typically the most common result for such lawsuits, as per statistics in the United States.
However, after Smoothstack recently agreed with O’Brien on some individual claims and moved for the motion to dismiss the case, the plaintiff’s attorneys pivoted, adjusting their strategy, considering they no longer had anyone to represent the lawsuit.
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