One has to give the Department of Justice props for pursuing what appears to be a very bad actor, despite the fact that it is not well known whether the dollar amount involved is truly hundreds of thousands. Please also see the DoJ press release and filing.
Written by Claudia Irizarry Aponte. First published in THE CITY on July 17, 2024
A Virginia-based IT services company is accused of “trapping” its employees at their jobs and demanding up to $30,000 in payouts if they leave before completing 4,000 hours of work, according to a US Department of Labor lawsuit filed in the Eastern District. of New York last week.
On its website, Smoothstack promises to train tech workers and place them in government positions and at prestigious Fortune 500 companies such as Morgan Stanley, Verizon and Bloomberg.
The company and its founder Boris Kiuper are accused of forcing employees to sign Training Repayment Agreement Provisions, known as TRAPs, which put them on the hook for tens of thousands of dollars if they try to quit or get fired from their jobs, and retaliating against those who called them down.
Based in Alexandria, Va., Smoothstack employs a large number of employees in Brooklyn, Queens, Staten Island and Manhattan, according to the complaint. Several of its major clients, none of which are part of the lawsuit, are also based in New York.
Smoothstack did not respond to CITY’s request for comment. Morgan Stanley, Verizon and Bloomberg also did not respond to THEKU’s requests for comment.
Beginning in April 2024, Smoothstack received more than $90 million in subcontracting from Accenture to support its work on behalf of the US Department of Education’s Office of Federal Student Aid. The US Department of Education did not immediately respond to TEKU’s request for comment.
The DOL is seeking an injunction barring Smoothstack and Kuiper from continuing to claim workers’ compensation benefits, saying the workers’ wages are below the federal minimum wage in a system that “resembles modern-day slavery,” according to the lawsuit. It also seeks to prevent the company from retaliating against employees who file complaints.
Labor lawyer Seema Nanda said in a statement that Smoothstack “defies the law by creating a system that locks workers out of jobs with cruel and illegal contracts.”
According to the lawsuit, Smoothstack hires technical workers for a period of two years divided into three categories: First as unpaid interns for two to three weeks, then as minimum wage interns for whatever state they live in, and finally as salaried employees. with a Smoothstack client, where they earn $60,000 to $70,000 a year.
Smoothstack requires recruits to sign agreements to progress through each stage of employment, but does not disclose TRAP agreements until the employee has accepted an offer of full paid employment with the client, according to the lawsuit.
Employees who leave the company before completing their billable commitment period of 4,000 hours — about two years — are liable for $24,000 to $30,000 to companies depending on their length of employment. A TRAP is triggered if an employee resigns or is terminated for any reason before fulfilling the 4,000 hour requirement or if they violate any other part of the obligation.
The DOL also charges that Smoothstack does not pay overtime hours to interns, who can work up to 84 hours per week, and instructs employees not to log more than 40 hours worked in a work week while earning minimum wage.
It’s the second lawsuit against Smoothstack in as many years charging the company with violating federal minimum wage standards. A former employee in Colorado has filed a class action lawsuit in federal court in Alexandria, VA. last year, he accused the company of underpaying trainees and continuing to do so even after they started working for one of the company’s clients.
The former employee, Justin O’Brien of Colorado, is represented by attorneys for the Student Borrower Protection Center (SBPC) and Towards Justice.
Winston Berkman-Breen, SBPC’s legal director, applauded the DOL’s decision, saying it vindicates their arguments that it “lures low-wage workers with false promises of rigorous training and future employment at Fortune 500 companies to hold them to binding contracts, and to intimidate them.” to sue them for up to $30,000 if they dare to leave the company for any reason, is against the law.”
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