One of our employees just quit-two weeks after finishing an expensive monthlong training program that we paid for. We also paid her salary while she was in training. Can we somehow force this ex-employee to reimburse us? Is there some way to set up a policy or contract with new trainees that protects us from early quits in the future?
— Angry in Sacramento
The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.
For an in-depth analysis of this vexing problem, we enlisted the help of Patrick M. Glenn and Christina A. Luini.
Your ability to seek reimbursement for your former employee’s salary and cost of training depends on two factors: 1) whether the time your employee spent in training constitutes hours worked, and 2) whether the training cost is an expense the employee incurred as a direct consequence of her employment with your company.
Laws Applicable to the Reimbursement of Salary and Training Costs
The Code of Federal Regulations addresses the treatment of employee time spent in training. Under these regulations, time spent attending lectures, meetings, and training programs counts as hours worked, unless all of the following criteria are met:
- Attendance is outside of the employee’s regular working hours;
- Attendance is voluntary;
- The course, lecture, or meeting is not directly related to the employee’s job; and
- The employee does not perform any productive work during such attendance.
If the training program your former employee participated in doesn’t meet these requirements, the time she spent in training is considered hours worked and she is entitled to receive her regular salary. Thus, you may not ask her to reimburse you for the salary wages she was paid during her monthlong training.
Furthermore, the California Labor Code does not authorize employers to recoup training costs in this situation. In fact, requesting reimbursement for the costs of the training program from your former employee may run afoul of the law. Section 2802 of the California Labor Code, for example, states that employers must indemnify employees for all necessary expenditures or losses incurred as a direct consequence of discharging their duties or obeying their employer’s directions.
If your former employee attended the training program at your direction or as part of her job responsibilities but paid for it herself, she would be entitled to reimbursement from you. The implication is that an employer cannot seek reimbursement from an employee for costs that the employee would be entitled to have reimbursed by the employer.
Developing a Policy-Legal and Practical Considerations
If the cost of the training your employees attend constitutes a necessary expenditure in the discharge of their duties at your company, then it would violate Section 2802 to have your employees contractually agree to reimburse you for those costs if they quit within a stated period of time after attending the training. Such a contract would be declared null and void and might subject your company to civil penalties for violating the Labor Code.
Moreover, it is also possible that a policy requiring employees to reimburse you for training costs if they quit within a stated period of time after being trained would be treated as a noncompete agreement. Past court decisions have viewed employer attempts to restrain employee mobility or the ability to compete with suspicion. Consequently, California courts have found blanket agreements not to compete with former employers or contracts with penalty provisions for such competition void on public policy grounds.1 Thus, a California court might find that a provision requiring an employee to reimburse expensive training costs creates an indirect restraint on that employee’s ability to change jobs, undermining the state’s strong policy in favor of open competition.
California decisions that have invalidated post-employment ‘forfeiture’ clauses in employment agreements may also be relevant. Generally, these clauses have been struck down as unenforceable noncompete agreements if they cause the former employee to forfeit vested rights to earned compensation (such as bonuses or commissions) or pension and retirement benefits.3 If the training you provide is construed as a vested benefit of employment with your company, this argument might come into play.
Nevertheless, if you implement a nondiscretionary reimbursement policy that applies, regardless of whether the employee leaves your company for a competitor or for some other reason, it is possible that a California court would not analyze the policy as a noncompete agreement. You should be aware, however, that if the policy you implement is successfully challenged as an unlawful noncompete agreement, the person who brought the suit would be entitled to both injunctive and declaratory relief, triple damages, and reasonable attorney’s fees. Moreover, employers who require California-based employees to execute agreements containing unenforceable covenants not to compete as a condition of beginning or continuing employment may be liable for wrongful discharge or unfair hiring practices claims if the employee is fired or not hired for refusing to sign such an agreement.4
Finally, as a practical matter, it may be very difficult for you to recoup training costs from your former employee, even with an enforceable reimbursement policy in place. The California Court of Appeals found that an employer does not have the right to set off an employee’s debt against wages due to the employee when discharged.5 And deducting training expenses from an employee’s final paycheck is probably illegal, given the state Division of Labor Standards Enforcement’s reasoning on a similar matter.
In summary, it is questionable whether a policy requiring employees to reimburse you for the costs of training if they quit within a stated period of time after receiving the training would be enforceable under Labor Code Section 2802 and California’s rules governing restrictive covenants. Moreover, even if the policy were valid, you would have to file a lawsuit to recover the training costs from the former employee.
Patrick M. Glenn is the section head of the Labor and Employment Practice Group at Hanson Bridgett Marcus Vlahos & Rudy. Christina A. Luini is also a member of the Labor and Employment Practice Group. Both attorneys are based in the firm’s San Francisco office.
1 See, e.g., Metro Traffic Control v. Shadow Traffic Network, 22 Cal. App. 4th 853(1994).
84 Cal. App. 3d 176 (1978).
See, e.g., Muggill v. Reuben H. Donnelley Corp., 62 Cal. 2d. 239, 242 (1965).
See D’Sa v. Playhut, Inc., 85 Cal. App. 4th 927 (2000). 17125 Cal. App. 3d I (1981).
125 Cal. App. 3d 1 (1981).