Smoothstack Lawsuit: “Indentured Servitude” & Wage Theft

Smoothstack Lawsuit: IT company Smoothstack faces lawsuits for allegedly exploiting workers. Accusations include unfair contracts forcing low pay and “indentured servitude.” Learn about the claims and details.

Smoothstack, an IT staffing agency, is facing serious legal challenges. Two major lawsuits accuse the company of exploiting its workers through unfair labor practices. These lawsuits paint a picture of a company that allegedly uses deceptive tactics and illegal contracts to control and underpay its employees.

In this detailed article will break down the details of these lawsuits, the allegations against Smoothstack, and what it could mean for the tech industry and worker rights.

Department of Labor Files Lawsuit: “Modern-Day Indentured Servitude”

In July 2024, the United States Department of Labor (DOL) took strong action against Smoothstack Inc. and its co-founder, Boris Kuiper.

The DOL filed a lawsuit in federal court, claiming Smoothstack’s practices are like “modern-day indentured servitude.”

This lawsuit is a significant move by the government to protect workers’ rights and ensure fair labor practices.

Source: Department of Labor seeks court order to end IT staffing agency practices that exploit workers through a system akin to modern-day indentured servitude – U.S. Department of Labor

Key Allegations by the Department of Labor:

The DOL lawsuit outlines several serious accusations against Smoothstack.

These allegations center around how Smoothstack allegedly controls its employees’ wages and restricts their freedom.

Illegal Training Repayment Agreement Provisions (TRAPs)

Smoothstack made employees sign contracts called Training Repayment Agreement Provisions (TRAPs). These contracts forced employees to work for about two years (4,000 billable hours) just to keep their jobs and wages. The DOL argues these TRAPs are illegal and used to control workers.

Wage Violations and Sub-Minimum Wage Pay

The lawsuit claims that if employees tried to leave Smoothstack, were fired, or supposedly broke their contract, the company demanded they pay a huge sum – up to $30,000. This money was supposedly for “training costs,” “lost profits,” and “administrative expenses.”

The DOL says this practice was so severe that it caused some employees to earn less than the federal minimum wage, which is illegal.

Retaliation and Anti-Retaliation Tactics

Smoothstack is accused of trying to stop employees from exercising their rights under the Fair Labor Standards Act (FLSA). The company allegedly threatened employees with penalties of nearly $30,000 or job loss if they breached broad non-disparagement, non-disclosure, and confidentiality agreements.

These agreements were so wide-ranging that they stopped employees from talking about their pay, work conditions, or any complaints, or even speaking negatively about Smoothstack.

The DOL argues this is illegal retaliation and an attempt to silence workers.

Obstructing Government Investigations

The lawsuit further alleges that Smoothstack had a company policy that required employees to inform Smoothstack if any government investigator contacted them.

The policy also allegedly forbade employees from giving any information to investigators unless they were legally forced to. The DOL sees this as an attempt to obstruct government investigations and prevent workers from freely cooperating with authorities.

Department of Labor’s Goal:

Through this lawsuit, the Department of Labor is asking the court to issue an order to immediately stop Smoothstack and Boris Kuiper from continuing these alleged illegal practices.

The DOL specifically wants to stop the use of TRAPs that lead to wages below the minimum wage and the overly broad contract provisions that threaten employees who try to assert their rights.

The DOL aims to protect workers from what they describe as exploitative and unlawful practices.

Class-Action Lawsuit: “Wage Theft Operation” and “Predatory Training”

Before the Department of Labor lawsuit, in April 2023, a former Smoothstack employee, Justin O’Brien, filed a class-action lawsuit against Smoothstack Inc.

This lawsuit makes similar, but also distinct, allegations about Smoothstack’s business practices. This is a class-action lawsuit, meaning it is filed on behalf of a group of people who have allegedly been harmed in a similar way by Smoothstack.

Sources:

• “Unconscionable” Debt-for-Training Scheme Funnels Low-Wage Tech Workers to Fortune 500 Companies; Groundbreaking Class-Action Lawsuit Seeks to Void Predatory Training Repayment Agreement Provisions – Student Borrower Protection Center
• Smoothstack Hit with Class Action Over Allegedly Unlawful Wage Scheme – ClassAction.org
• O’Brien v. Smoothstack Inc. – 1:23-cv-00491 – Class Action Lawsuits – ClassAction.org (PDF Complaint Document) – ClassAction.org (PDF Complaint Document)

Key Allegations in the Class-Action Lawsuit:

Justin O’Brien’s lawsuit portrays Smoothstack’s business model as a “wage theft operation” combined with a “predatory for-profit training program.”

The lawsuit details how Smoothstack allegedly attracted and exploited workers.

Wage Theft During Training

The lawsuit alleges that Smoothstack failed to pay employees any wages for the first three weeks of their training program. For the remaining five months of training, employees were allegedly paid as little as $7.25 per hour, which was the federal minimum wage at the time of filing (though Virginia’s minimum wage was higher – see context box below).

This low pay allegedly persisted even when employees worked overtime, sometimes up to 80 hours per week. The lawsuit argues this constitutes wage theft as employees were not fairly compensated for their work and time.

Predatory TRAPs and Debt Burden

Similar to the DOL lawsuit, the class-action lawsuit highlights Smoothstack’s use of TRAPs. Employees were allegedly pressured to sign these agreements, which could force them to pay significant penalties, upwards of $24,000, if they left Smoothstack before completing a mandatory billable hour requirement of 4,000 hours.

The lawsuit argues these TRAPs are predatory and designed to trap workers in low-paying jobs under threat of massive debt.

Unconscionable Contracts and Virginia Law

The class-action lawsuit specifically argues that Smoothstack’s TRAPs are “unconscionable” under Virginia law. “Unconscionable” in legal terms means extremely unfair and one-sided.

The lawsuit claims that Virginia law prohibits employers from imposing penalties on employees for leaving their jobs, and Smoothstack’s TRAPs violate this legal principle.

False Promises and Deceptive Recruitment

The lawsuit alleges that Smoothstack lured in workers with false promises of permanent, high-paying careers at Fortune 500 companies after completing their training. 

The lawsuit draws a parallel to failed for-profit colleges, suggesting Smoothstack used similar deceptive tactics to attract students/employees with promises that did not materialize.

The lawsuit implies that Smoothstack’s primary goal was to profit from low-wage labor and TRAPs, not to genuinely launch tech careers.

Class-Action Goals:

The class-action lawsuit aims to achieve several key outcomes for the affected employees:

• Invalidate the TRAPs: The lawsuit seeks a court order to declare Smoothstack’s TRAPs invalid and unenforceable, freeing employees from the threat of these debt obligations.
• Recover Unpaid Wages and Damages: The lawsuit aims to recover unpaid wages for employees who were underpaid during their training, as well as seek additional damages under the Fair Labor Standards Act (FLSA) for wage violations.
• Damages for Retaliatory Discharge: While less emphasized than in the DOL lawsuit in the provided summaries, the class-action also seeks damages for any employees who may have been retaliated against for asserting their rights.

Common Themes and Analysis of the Lawsuits

Both the Department of Labor lawsuit and the class-action lawsuit reveal a consistent pattern of allegations against Smoothstack. Several key themes emerge from these legal actions:

Training Repayment Agreement Provisions (TRAPs) as a Tool for Exploitation

Both lawsuits heavily focus on Smoothstack’s use of TRAPs. These agreements are presented as the central mechanism through which Smoothstack allegedly exploits its workforce. The lawsuits argue that TRAPs are not used for legitimate training cost recovery but as a tool to trap employees, suppress wages, and prevent them from leaving.

Wage Theft and Minimum Wage Violations

The allegations of wage theft, particularly during the training period, are a major point of concern. The class-action lawsuit specifically mentions pay rates as low as $7.25 per hour during training, even with long hours. The DOL lawsuit alleges practices led to pay below the federal minimum wage. These allegations raise serious questions about whether Smoothstack was meeting its basic legal obligations to pay employees fairly.

Worker Coercion and Control

Both lawsuits suggest Smoothstack created a system of coercion and control over its employees. The TRAPs, combined with threats of large financial penalties and restrictive contract terms, allegedly created an environment where employees felt trapped and unable to assert their rights or seek better opportunities. The DOL’s “indentured servitude” comparison highlights the severity of these allegations.

Deceptive Practices and False Promises

The class-action lawsuit emphasizes the alleged use of false promises to attract workers. The comparison to for-profit colleges suggests a pattern of luring individuals with the promise of a better future, while the reality is allegedly one of low wages and debt burdens.

Comparison of the Two Lawsuits:

While both lawsuits target Smoothstack’s labor practices, they have different origins and objectives:

• Department of Labor Lawsuit: This is a government enforcement action. The DOL is acting on behalf of the public interest to enforce labor laws and prevent worker exploitation. The focus is on stopping Smoothstack’s alleged illegal practices and ensuring compliance with labor laws in the future.
• Class-Action Lawsuit: This is a private lawsuit brought by a former employee on behalf of a class of similarly affected employees. The focus is on obtaining compensation for past harms suffered by employees due to Smoothstack’s alleged unlawful practices.

Both lawsuits are significant and could have major implications for Smoothstack and the IT staffing industry if the allegations are proven in court.

They also highlight the growing scrutiny of TRAPs and similar agreements that may be used to restrict worker mobility and suppress wages in various industries.

Wrapping up!

The lawsuits against Smoothstack paint a concerning picture of alleged worker exploitation within the IT staffing industry. The allegations of illegal TRAPs, wage theft, and coercive tactics raise serious questions about Smoothstack’s business practices and its treatment of employees.

These legal challenges are ongoing and will likely be closely watched by workers, employers, and regulators. The outcomes of these lawsuits could set important precedents regarding the use of TRAPs and other labor practices in the tech industry and beyond. For now, these lawsuits serve as a stark reminder of the need for vigilance in protecting worker rights and ensuring fair labor practices in all sectors of the economy.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. The allegations described in the lawsuits are yet to be proven in court. Smoothstack has the right to defend itself against these allegations.

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