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

NEW YORK – The U.S. Department of Labor has asked a federal court to stop improper employment practices by a Virginia-based IT staffing agency that bind employees to their jobs, extract huge sums from them if they leave the firm and forbid them from engaging in protected activity under federal law.

Filed today in the U.S. District Court for the Eastern District of New York by the department’s Office of the Solicitor against Smoothstack Inc. and its co-founder Boris Kuiper, the complaint alleges that the employers trap employees in their jobs by demanding them to pay up to $30,000 if they leave Smoothstack before completing 4,000 hours — about two years — of billable work, causing some employees to earn less than the federal minimum wage, a violation of the Fair Labor Standards Act. The department’s Wage and Hour Division is conducting an ongoing investigation.

“Federal law requires employers to pay employees for their work, not the other way around. Our lawsuit alleges Smoothstack Inc. and co-founder Boris Kuiper brazenly disregarded the law by creating a system that traps workers in jobs through outrageous and illegal contracts,” said Solicitor of Labor Seema Nanda. “All employers should be on notice that the Department of Labor will use everything in its power to protect workers from employers who weaponize employment contracts to exploit workers and chill them from exercising their federally protected rights.”

In its filing, the department alleges that, for at least three years, Smoothstack and Kuiper have violated the FLSA’s minimum wage and overtime requirements by requiring employees to sign contracts to complete approximately two years of billable work to be able to continue working for Smoothstack and to retain the wages they have already earned. If workers resign, are terminated for cause or found to have breached their contract, Smoothstack and Kuiper have unlawfully demanded workers to pay up to $30,000 for purported training costs, future lost profits and administrative expenses. The suit alleges that Smoothstack and Kuiper have routinely and repeatedly pursued legal action against former employees to force them to pay back amounts often far greater than the wages the workers earned while employed by firm. 

In addition, the suit alleges Smoothstack and Kuiper have undertaken practices that violate the FLSA’s anti-retaliation provision and have hampered the department’s ability to investigate violations of the law. The filing describes how they unlawfully restricted employees from engaging in FLSA-protected activity by threatening to impose a penalty of nearly $30,000 and/or loss of employment if employees breach the employers’ overly broad non-disparagement, non-disclosure and confidentiality provisions. These broad contract provisions forbid employees from speaking about the terms of their employment agreement, “employment related issues and grievances,” their “pay rates,” or speaking negatively about their work at Smoothstack. Smoothstack also has a policy that requires employees to inform Smoothstack first if they are contacted by a government investigator and forbids them from providing information to a government investigator unless compelled by law. 

The suit alleges that the defendants continue to control the employees’ ability to assert their FLSA rights, even after termination. By leveraging the threat of enforcing the contract provisions against employees who have not completed the 4,000-hour billable service requirement, the employers compel employees to sign separation agreements with many unenforceable provisions, including unlawfully requiring them to waive their FLSA rights and limiting their ability to disclose FLSA violations to the Department of Labor — an illegal attempt to obstruct federal investigations and workers’ protected rights to contact government agencies and freely discuss their working conditions.

The department’s complaint seeks an injunction forbidding Smoothstack and Kuiper from continuing their use of training repayment agreement provisions that reduce employees’ wages below federal minimums and would end their use of broad contract provisions that threaten to retaliate against employees who engage in protected activity under the FLSA and interfere with the department’s authority to enforce the FLSA. 

Headquartered in McClean, Smoothstack Inc. recruits IT professionals nationwide at the beginning of their careers with promises to launch their careers with paid training and work assignments with Smoothstack’s clients. 

Senior Trial Attorney Amy Tai in the Regional Office of the Solicitor in New York is litigating the department’s case.

The FLSA requires that most employees in the U.S. be paid at least the federal minimum wage for all hours worked and overtime pay at not less than time and one-half the regular rate of pay for all hours worked over 40 in a workweek. It also prohibits employers from firing or taking adverse action against employees for exercising their rights. Learn more about how the Wage and Hour Division protects workers against retaliation.

For more information about workers’ rights and other employee rights enforced by the division, contact the toll-free helpline at 866-4US-WAGE (487-9243). Employers and workers can call the division confidentially with questions regardless of where they are from and the department can speak with callers in more than 200 languages. Use an online search tool if you think you may be owed back wages collected by the division. Help ensure hours worked and pay are accurate by downloading the department’s Android and iOS Timesheet App for free, also available in Spanish.