though there are other academies that provide the training
certification. Over time, however,
became concerned that it was losing money when officers left the police
department shortly after completing the city’s training.
To encourage officers to stay longer,
understanding (MOU) with the Oakland Police Officers’ Association authorizing the
city to require trainees to reimburse the city for training costs if they left
the police department before completing five years of service. The MOU
provided: “Repayment shall be due and payable at the time of separation and the
City shall deduct any amounts owed under this provision from the employee’s
final paycheck. If said deduction does not fully reimburse the City for
outstanding costs, the balance shall thereupon be due and owing.” It also
stated that the debt would decrease by 20 percent each year the employee remained
on the force.
Under the FLSA, an employer can’t recoup an employee debt by making deductions that reduce an employee’s pay below minimum wage—even if the employee consents to the deductions
Police trainee Kenny Hassey signed a document agreeing to
reimburse the city for training expenses that was consistent with the MOU
terms. He graduated from
academy in six months and then became an
police officer. But his resignation a few months later over performance
problems sparked a big dispute—and lawsuit—over the city’s recovery of the
training expenses.
Debt Reduces Final Paycheck to Zero
At the time he resigned, Hassey signed a document agreeing to
repay the training costs in 24 monthly installments. To cover some of the costs
in the training repayment agreement,
withheld Hassey’s final paycheck for $725.28 and a check for $654.80 that was to
cash out Hassey’s retirement balance, although the agreement Hassey signed upon
resignation didn’t authorize these deduction. Hassey was left with a repayment
balance of $6,619.92.
When Hassey refused to pay the balance, the city sued him for
breach of contract. Hassey said he wasn’t paying the city back because the
repayment agreement violated the federal Fair Labor Standards Act (FLSA) and
the California Labor Code, and that the city illegally withheld his final
paycheck to recoup some of the training costs.
Repayment Agreement Is Legal
A California appeals court has now upheld a trial court ruling
that Hassey breached the contract he had with Oakland to repay training costs.1 In so ruling, the appeals
court explained that training reimbursement agreements don’t violate the FLSA
or California laws that prohibit employers from requiring kickbacks on employee
wages—but the reimbursement must be for training costs that are primarily for
the employee’s benefit rather than for wages paid during the training.
Final Paycheck Deductions Nixed
The appeals court went on, however, to find that even though the
repayment agreement was legal, deducting the training costs from Hassey’s final
checks was not. Under the FLSA, an employer can’t recoup an employee debt by
making deductions that reduce an employee’s pay below minimum wage—even if the employee
consents to the deductions.
Furthermore, under
law, an employer isn’t entitled to a setoff of debts an employee owes to it against
any wages due, explained the court. The court also said that even if Hassey had
agreed to repay the debt by paycheck deduction—which he didn’t—it is questionable
in
“whether employees may enter into agreements authorizing unlawful deductions.”
Problem Areas to Watch For
This decision makes it clear that agreements like the one
repayment of training costs are permissible under state and federal wage and hour
laws. Note, though, that whether you can require an employee to reimburse such
costs depends on whether the training is for the employer’s or employee’s
benefit. In the new case, the court noted that the training was primarily for
Hassey’s benefit, not the city’s, as he could have applied to a different police
department following the training or sought training at another certified
academy instead of attending Oakland’s.
But the case is also a warning about the dangers of deducting
employee debts from wages. Even if an employee consents to a paycheck deduction
for a debt, in no event should the deduction reduce the employee’s pay below
the minimum wage. And even then, because
law isn’t settled on the issue of whether an employer can deduct for debts if
authorized by the employee, it is risky to make such reductions and best to
just have the employee reimburse you.
For more on the topic of final paychecks, see our exclusive
Special Report, Final Pay: A
Roadmap to the Pay Rules When Employment Ends.
You can link to this
new case online at www.courtinfo.ca.gov/opinions/.