The Smoothstack lawsuit has become a major story in the technology industry. Smoothstack promised young people good training and job opportunities with companies like Morgan Stanley and Accenture. However, workers found unfair contracts, low pay, and huge penalties if they tried to leave. In April 2023, a former worker filed a lawsuit, and the U.S. Department of Labor joined, calling Smoothstack’s practices “modern-day indentured servitude.” This article explains what happened at Smoothstack and why it matters.
What Is Smoothstack and How Does It Work?
Smoothstack is a staffing and training company that looks for people who are new to IT jobs and want to start their careers. The company promises free training in tech skills and then helps workers find jobs with major companies. On the surface, this sounds like a great opportunity for young people entering the tech world.
The company works with Fortune 500 companies like Johnson & Johnson, Capital One, Bloomberg, Morgan Stanley, and Verizon. Smoothstack has also received millions of dollars in government contracts, including more than $90 million from Accenture to support work for the U.S. Department of Education. This shows that Smoothstack was trusted by major organizations to train and place technology workers.
The Three Stages of Employment and Payment Problems
Smoothstack hires tech workers for two years divided in three stages. First, workers are unpaid trainees for two to three weeks. Then they become minimum wage trainees, and finally they work as salaried employees placed with a Smoothstack client earning $60,000 to $70,000 annually.
The first stage is very difficult for new workers because they receive no payment at all. During the second stage, they earn only minimum wage while doing real work. According to the lawsuit, Smoothstack requires employees to work without pay during the first weeks, refuses to pay overtime wages, and instructs employees not to record any hours worked over 40 in a workweek. This means workers can be required to work 84 hours per week but only get paid for 40 hours at minimum wage.
By the time workers reach the third stage with a regular salary, they have already lost weeks of unpaid work and weeks of minimum wage work. This creates a tough situation for people just starting their careers.
The TRAP: The Contract That Locks Workers In
At the center of the lawsuit is the TRAP, which stands for Training Repayment Agreement Provision. This is a contract rule that says workers must pay back large amounts of money to the company if they leave before completing a certain amount of work.
Under the TRAP, employees must complete 4,000 hours of billable client work to keep their earned wages. If they leave before completing this requirement, Smoothstack demands a penalty of up to $30,000. This is roughly equivalent to two years of full-time work. So workers are essentially locked into working for Smoothstack for two years, or they face an enormous financial penalty.
The biggest problem is that Smoothstack does not disclose the TRAP agreements until after an employee has accepted a full-time paid job offer with a client. So workers don’t learn about this serious penalty until they have already committed to the job. At that point, many feel trapped because they have already left other jobs or made other plans.
The Wage and Hour Violations
The lawsuit shows that Smoothstack fails to pay the legal minimum wage and overtime pay that workers deserve by law. The Department of Labor accuses Smoothstack of violating the Fair Labor Standards Act (FLSA), a law that protects workers. The company also uses TRAPs to recover wages from employees, reducing their pay below legal minimums.
Additionally, Smoothstack keeps 50 percent of its workers’ wages. When clients pay Smoothstack for worker services, the company pays workers only a portion and keeps the rest as profit. This practice, combined with unpaid training weeks, means workers earn far less than they should be.
The Government Gets Involved
In July 2024, the U.S. Department of Labor filed a lawsuit against Smoothstack and its COO Boris Kuiper, alleging they violated federal law by using predatory contracts and silencing workers. The Department of Labor claims Smoothstack’s practices amount to “modern-day indentured servitude.”
The lawsuit is significant because government officials believe the situation is serious enough to require federal action. Smoothstack’s employee handbook requires employees to notify the company if contacted by government investigators and bans them from providing information to outside parties about lawsuits or investigations unless compelled by law. These restrictions prevent the government from learning the full truth about what is happening at the company. The Federal Trade Commission is also examining whether TRAPs should be regulated more strictly.
What Happens Next?
The lawsuits against Smoothstack are still ongoing. The courts have not yet made final decisions. Several possible outcomes could happen. The company could lose the case and pay back wages to workers. The company could settle by paying money without admitting guilt. Or the case could continue for a long time as courts work through legal questions.
Conclusion
The Smoothstack lawsuit is a reminder that workers deserve fair treatment, honest contracts, and reasonable working conditions. Whether you work in technology or another industry, this case matters because it is about basic fairness in the workplace. The outcome could change how technology staffing companies treat their workers and set important examples for other industries.
Frequently Asked Questions
1. What did Smoothstack do wrong?
Smoothstack is accused of making workers do unpaid work, refusing to pay overtime, and using unfair contracts called TRAPs. These TRAPs require workers to pay up to $30,000 if they leave before two years. The company also tried to stop workers from talking to government investigators.
2. How much penalty do workers face if they leave?
Workers can be charged between $24,000 and $30,000 if they leave before completing 4,000 hours of work, which is about two years of full-time employment. This is a large penalty for workers who earned very low wages during training.
3. Is Smoothstack still hiring?
Yes, Smoothstack still operates and hires new workers. The company has not admitted to any wrongdoing, and the lawsuits are still ongoing. However, fewer people are interested in working there because of the bad reputation the company has gained.
4. Can former employees join the lawsuit?
If you worked at Smoothstack and were treated unfairly, you may be able to join the class action lawsuit. You would need to provide information about your employment, hours worked, and wages. Workers’ lawyers can help you understand if you are eligible for settlement money.
5. Will this lawsuit change other tech staffing companies?
Yes, this lawsuit could force other tech staffing companies to change how they hire and pay workers. If Smoothstack loses, other companies may have to stop using TRAPs and pay workers fairly. The Federal Trade Commission is also looking at whether these agreements should be banned completely.
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