California employers are continuously affected by new laws and regulations. Employers have to ensure they are following wage and hour laws and also educating and training employees about their rights, in addition to making sure employees are trained properly for the duties required by their position. One area where the law favors employers is the employer’s ability to seek reimbursement from an employee for the cost of education or training.
The ability for employer’s to seek reimbursement from employees for training was established in the 2008 case Hassey v. City of Oakland. In this case, the City of Oakland sued Kenny D. Hassey for breach of contract after Hassey did not reimburse the city, as he had agreed, for his training costs to become a police officer. Hassey alleged that the agreement to repay Oakland for training costs violated the Fair Labor Standards Act (FLSA) of 1938 and other California laws. The court found that Hassey did not prove that the agreement to reimburse Oakland for training costs violated the FLSA. However, the court also held that employers may not withhold money from an employee’s paycheck to cover training expense debt.
To be reimbursed for the considerable expenses associated with training and educating an employee who leaves shortly after the training, employers can require employees to execute training/education cost repayment contracts. In order to increase the chance that such a repayment contract will be upheld in the event of a legal challenge, the repayment amount should be based upon the actual and realistic estimated expenses. It should also be pro-rated based upon the total time worked. For example, an employer might forgive 20% of the cost each year for a period of five years. To the extent the training/education involves the employer’s trade secrets or intellectual property, the employer may also want to include a paragraph or two in the contract that the employee agrees not to disclose trade secrets or intellectual property to third parties.
Because employers cannot deduct the cost of the education/training directly from an employee’s wages, the repayment contract must be treated like a loan where the employee provides reimbursement to the employer. If an employer withholds any amount owed under the contract from an employee’s paycheck, that could subject the employer to penalties. These penalties will probably far exceed the amount actually owed by the employee. If an ex-employee does not repay the loan, the employer should take the issue to small claims court or a limited civil action, depending upon the amount owed.