Recouping Costs from Employees May Violate Forced Labor Laws

Employers frequently impose contract terms that require workers to repay certain costs or expenses if they voluntarily leave their jobs. The main legal issue with these terms is whether they are enforceable under state law. State laws determine whether these liquidated damages clauses are a reasonable reimbursement of employer expenses or an attempt to punish workers for quitting.

The analysis doesn't stop there. Liquidated damages clauses might not only be unenforceable under state law, but they could also violate federal and state human trafficking laws.

The Trafficking Victims Protection Act (TVPA) is a criminal law that bans forced labor, human trafficking, and related crimes. In 2003, it was updated to give victims a private right of action. The part about forced labor aims to combat the many ways employers use to force workers into labor.

Forced labor broadly includes physical restraint, threats, abuse of legal processes, withholding documents, or schemes aimed at making individuals believe that refusing labor would lead to serious harm or restraint. It also covers threats of financial, economic, emotional, and psychological harm. Many states have enacted similar laws.

Recent court rulings indicate that liquidated damages clauses requiring workers to pay for not fulfilling contracts can support plausible forced labor claims. The Eastern District of New York allowed Filipino nurses’ TVPA claims to proceed after finding a $15-per-hour damages clause threatening serious harm. Another court ruled that threatening to enforce a $25,000 termination fee also posed a serious harm threat under the TVPA.

The Eastern District of New York denied an employer’s motion to dismiss a TVPA forced labor claim, noting the case involved a highly-educated worker, not a low-skill immigrant. The court found a contract requiring her to pay up to $48,000 if she left early was punitive, as it was nearly a third of her salary and unrelated to actual costs.

This decision also addresses whether a contractual clause alone can create a threat of serious harm necessary for a forced labor claim under the TVPA. The defendants argued that verbal threats were needed to enforce the clause, but the court dismissed this. It reasoned that parties are assumed to read and understand their contracts, so knowing about punitive provisions may discourage workers from leaving, satisfying the threat requirement. The court added this effect is especially true for foreign workers unfamiliar with the legal system.

This case reminds employees that forced labor can occur without physical confinement or threats, and the TVPA applies beyond just domestic workers or border-crossing manual laborers.

asking employees to pay more than actual costs could be seen as punishing workers for leaving, risking violations of the TVPA or similar laws.

The damages in TVPA cases can be significant. Victims can recover for all damages proximately caused by their subjection to forced labor or trafficking. In addition to economic damages sustained by the victim, plaintiffs also may recover emotional distress damages. District courts have awarded up to $800 for each day that an individual is subjected to forced labor. Courts regularly award punitive damages of one or two times the amount of compensatory damages.