Smoothstack Lawsuit Claims Tech Company Exploits New Hires

In recent years, American attitudes towards work have shifted dramatically. “Hustle culture,” which celebrated having multiple jobs, has been replaced by “quiet quitting,” encouraging workers to reduce their working hours and push back against exploitative employers. While tech companies have legendarily demanded long hours and personal sacrifice from new hires eager to advance, the recent Smoothstack lawsuits indicate that this culture may be changing.

What Are the Smoothstack Lawsuits About?

Smoothstack is a staffing agency that provides skilled information technology (IT) workers for a wide range of companies and government agencies. It recruits and trains workers to meet the needs of its star-studded portfolio of corporate clients, which include Johnson & Johnson, CapitalOne and Bloomberg. The company promises potential candidates intensive training in cutting-edge IT platforms and skills and assistance connecting with top-tier employers.

A recent class action lawsuit alleges that Smoothstack’s training is merely a smokescreen to allow the company to exploit the trainees and profit from their cheap labor. During their training, candidates are pressured into signing coercive Training Repayment Agreement Provisions (TRAPs). Candidates agree to these agreements in exchange for Smoothstack waiving the cost of their training. If they don’t fulfill their obligations, they must repay the company.

This may seem like a reasonable bargain. However, reviewing the terms of Smoothstack’s TRAPs reveals many onerous conditions. They obligate trainees to work 4,000 hours of billable work that can be billed to Smoothstack’s corporate partners before they can accept other employment. (An average 40-hour/week schedule equals about 2,000 hours of work per year, and billable time is typically about 60-80% of total working hours.)

Plaintiff describes how Smoothstack took advantage of the COVID-19 pandemic’s effect on employment in the U.S. to bully him and others into signing its unconscionable TRAP as a condition of beginning the training program. The company uses the threat of litigation to ensure workers who haven’t met their working hour obligation are essentially “indentured servants,” unable to leave for better jobs or negotiate better pay unless they pay a $20,000+ penalty.

Meanwhile, Smoothstack uses the pool of cheap labor to fulfill its lucrative contracts, keeping 50% of its workers’ wages. It controls how those workers are assigned to jobs, making it impossible for an energetic worker to work more hours to fulfill their obligation and end Smoothstack’s control. Between assignments, workers are paid minimum wage. Their TRAP prohibits them from obtaining better-paying work until they complete their obligation.

Breaking Down the Smoothstack Lawsuit Claims

In April 2023, a former Smoothstack trainee filed suit against the company in the U.S. District Court for the Eastern District of Virginia, where its headquarters is located. The Complaint alleges that Smoothstack violates federal labor laws and workers’ rights in the following ways:

• Imposing restrictive employment contracts. The plaintiff claims trainees were bullied into signing contracts with non-compete clauses and hefty repayment obligations for training costs, which limited their employment opportunities and career mobility.
• Unfair wage practices. The plaintiff alleges that Smoothstack underpaid employees by classifying them as trainees and paying them below-market wages while they performed the same work as regular employees.
• Inadequate working conditions. Workers reported poor working conditions, including working without being paid minimum hourly wages or overtime compensation.
• Illegal kickbacks. Despite a Virginia state court ruling that Smoothstack’s TRAP is unconscionable and an unenforceable liquidated damages penalty, the company continues litigating these agreements, essentially extorting illegal kickbacks from workers to avoid being sued.
• Economic interference. While the TRAPs promise Smoothstack will support each candidate’s professional development and provide job placement assistance, workers claim the company doesn’t fulfill this obligation and actively prevents them from obtaining outside employment.

After reaching a settlement with the lead plaintiff on some of his individual claims, Smoothstack moved to dismiss the case. Lacking an individual affected plaintiff to represent the class, the plaintiff’s attorneys pivoted and adjusted their strategy.

Round Two: The Department of Labor’s Smoothstack Lawsuit

In July 2024, a second lawsuit was filed against Smoothstack in the U.S. District Court for the Eastern District of New York. It contains essentially the same allegations on behalf of Smoothstack workers based in various parts of New York. In addition to the claimed violations of federal law, this Complaint adds claims under New York state worker protection laws.

The named plaintiff in this suit is the Acting Secretary of Labor, representing the United States Department of Labor (DOL). The DOL claims Smoothstack’s practices undermine its statutory authority to investigate employers and gather information from employees. They have a chilling effect on employees’ ability and willingness to enforce their rights, including speaking freely with DOL investigators. Therefore, the agency has “standing” (the right to bring the case).

The New York federal court must evaluate whether to “certify the class” and allow the case to proceed as a class action. This decision will not be made until after the defendant files a pleading in response to the plaintiff’s Complaint. If the case is certified, litigation will begin with attorneys identifying and contacting potential members of the class (people who suffered similar injuries as the named plaintiffs).

Workers' Rights and Protections in the United States

The Smoothstack case is emblematic of broader issues within the tech industry, where rapid growth and demand for skilled workers often lead to exploitative practices. This lawsuit has prompted a wider discussion about workers' rights and protections within the tech sector and across all industries in the United States. It highlights several critical aspects of workers' rights issues, including:

• Non-compete agreements. While non-compete agreements were once used only by high-value executives entrusted with a company’s most valuable secrets, many companies now require them for all workers. This makes it difficult or impossible for many employees to ever leave their jobs.
  Even if an agreement is unenforceable, the threat of a lawsuit often keeps employees (and potential employers) from violating its terms. There is a growing call for stricter regulations, prohibiting non-compete clauses and other restrictive employment covenants in mandatory employment agreements and limiting their applicability to a very small subset of employees.
• Wage and hour laws. The federal Fair Labor Standards Act (FLSA) sets the minimum wage, overtime pay and other employment standards. State laws can provide additional worker protections, such as requiring companies to allow periodic breaks. Despite this, wage theft and misclassification of employees continue to occur. Ensuring workers are properly classified as employees and paid fair wages is crucial, especially in gig and tech industries where non-traditional employment arrangements are common.
• Working conditions. Safe and healthy working conditions are fundamental rights under federal and state laws. The federal Occupational Safety and Health Administration (OSHA) oversees workplace safety, but ensuring worker safety is an ongoing challenge. Workers who report dangerous workplace conditions may face illegal retaliation.
  Tech and IT workers are at risk for debilitating conditions and occupational injuries such as carpal tunnel syndrome, headaches and vision problems if they work long hours in stressful environments. Tech employers should take steps to protect the health and welfare of all employees and reduce these types of injuries.
• Training and professional development. Unfortunately, many employers use training programs or educational benefits as a way to trap workers into unfavorable employment terms. Training programs should be transparent and fair, offering benefits to both the worker and the company. The DOL and other groups are working to outlaw Training Repayment Agreement Provisions (TRAPs)
• Collective bargaining and unionization. Unions have historically played a vital role in protecting workers' rights. However, unionization rates have declined over the years, weakening employees’ collective bargaining power. Encouraging unionization and protecting workers’ right to organize can lead to better working conditions and fairer wages.

Addressing each of these issues requires a combination approach by workers, voters and legislators. Class action lawsuits that expose exploitative practices can help galvanize change and protect American workers better.