About Us  |  About Cheetah®  |  Contact Us

Employer entitled to reimbursement of training costs from employee who leaves employ prematurely

February 11th, 2016  |  Ron Miller  |  2 Comments

Was an employer entitled to recoup the costs of a training program it provided for an employee who, upon completion, left for other employment? Or was the lawsuit pursued by the employer just an effort to circumvent the FLSA’s “free and clear” payment requirement with respect to wages, or an unlawful attempt to shift business expenses onto the employee in violation of the California Labor Code? In USS-POSCO Industries v. Case, a California appeals court affirmed a lower court’s grant of summary judgment in favor of the employer and had no trouble rejecting the employee’s various arguments as to why the reimbursement agreement should not be enforced.

Shortage of skilled workers. The employer was faced a shortage of skilled Maintenance Technical Electrical (MTE) workers. To address this problem, it entered into an agreement with a union implementing a learner program. Moreover, the employer and union recognized that due to the strong demand for MTE workers, the company needed to retain successful candidates as employees for a reasonable time in order to recoup its substantial investment—approximately $46,000— in their training. Thus, they agreed that candidates in the learner program would sign an agreement that would require reimbursement for a portion of the training should a candidate voluntarily terminate employment within 30 months of completion of the program.

This dispute arose when an employee who voluntarily enrolled in the three-year, employer-sponsored educational program quit his job with the employer just two months after completing the program. As required of candidates for the program, he had agreed to reimburse the employer a prorated portion of program costs. However, when the employer sought reimbursement, the employee balked at the $28,000 bill. After the employer sued for breach of contract and unjust enrichment, the employee filed a cross-complaint asserting that the reimbursement agreement was unenforceable.

In defending against the employer’s attempt to recoup the cost of the training, the employee unsuccessfully asserted, among his other defenses, that the employer was attempting to make an end-run around the various wage provisions of the California Labor Code and violated the FLSA’s “free and clear” payment requirement, among other claims. However, a trial court granted the employer’s motion for summary judgment on both its complaint and the employee’s cross-complaint.

No Labor Code breach. Labor Code sections 2802, 2804, and 450 prevent employers from passing certain operating expenses on to employees. The employee contended that the reimbursement agreement was an unlawful attempt to foist workforce costs onto employees. However, none of these statutes was implicated by a strictly voluntary, optional training program of the sort offered by the employer, the appeals court noted. The employee made no expenditure nor suffered any loss in direct consequence of the discharge of his duties or in obedience to the directions of the employer. Rather, it was the employer that fronted the costs of the advanced training voluntarily undertaken by the employee.

Not unconscionable. The appeals court next rejected the employee’s contention that the reimbursement agreement was procedurally unconscionable. First, the estimated cost of the program was $46,000, not the $30,000 ultimately specified in the reimbursement agreement. And there was no evidence the nearly three-year program was improperly valued. Also, the reimbursement terms were no surprise. Moreover, the employee was not contracting for necessities but for an optional, advanced educational program.

No taking of “wages.” Finally, the court rejected the employee’s contention that the employer’s reimbursement demand of $28,000 was an unlawful withholding of “wages” under Labor Code sections 221, 222, and 223. Those provisions addressed the proper payment of wages, and that was not an issue contemplated by the agreement to repay training expenses. Further, the employer’s complaint in no way alleged any part of the $28,000 sought was “wages” under any provision of the Labor Code.

Responses

  1. Glen says:

    June 15th, 2016 at 1:58 pm

    Great content. My question is, did the amount the employer was seeking include wages paid or was it all related to tuition? I recently joined a company as their HR Manager and the training agreement they have been using includes the salary/hourly cost of wages paid during the training. Is that legal? We are located in NY.

  2. Tony says:

    May 25th, 2017 at 10:11 am

    Thanks! It sounds like my company is in compliance, but we do one more thing. We take a small amount of wages for a training savings account. If the employee leaves during the count down period, 12 month after graduation, the savings account is used to pay off a fraction of the debt. We often let the rest go, absorb it as an operating expense. After the count down period, the money is completely the employees. Is it legal?

Leave a Response

Powered by WP Hashcash