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Can Employers Recover “Training Costs” From Employees?

In a recent decision by the First Appellate District in California, a court of appeals concluded that the City of Oakland could require an employee to repay training costs the employer incurred in training the employee. When Ken Hassey was hired by the Oakland Police Department, he signed a “conditional offer” that required Hassey to repay $8,000.00 in training costs if he failed to work for the Police Department for 5 years. Additionally, the Memorandum of Understanding negotiated by Hassey’s union allowed the City of Oakland to withhold any training costs from Hassey’s final paycheck. Partway through his initial training Hassey was encouraged to resign from the police department. Hassey signed a Training Cost Repayment Plan agreeing to repay the training costs. Despite the fact that the Training Cost Repayment Plan did not authorize the City to deduct the training costs from Hassey’s final paycheck, the City of Oakland withheld a portion of Hassey’s final paycheck and applied it to the debt.

When Hassey failed to make the required payments, the City of Oakland sued Hassey for the remaining balance. Hassey filed a cross-complaint alleging, among other things, that the repayment obligation was unlawful, that the City unlawfully withheld Hassey’s final paycheck and that the repayment obligation was an unenforceable covenant not to compete.

Analyzing the case under federal and California law, the appellate court concluded that the reimbursement agreement was valid. Relying on a Wisconsin case with similar facts, the court concluded that, “Oakland was permitted to seek reimbursement from police officers who gained the benefit of its training program at the Oakland Police Academy but did not stay with the police department long enough for Oakland to benefit from that training.”

The court also held, however, that the City of Oakland could not withhold Hassey’s final wages. California courts have long held that “an employer is not entitled to a setoff of debts owing it by an employee against any wages due that employee.” In particular, employers need to ensure that employees always receive at least minimum wage and any required overtime payments.

Finally, the court held that the repayment obligation was not an unlawful covenant not to compete. Although California has a strong public policy against covenants not to compete, nothing in the repayment obligation limited Hassey’s right to seek employment elsewhere. Although not specifically stated, the fact that Hassey had to repay the training costs regardless of whether he accepted another job that utilized Hassey’s training likely made it easier for the court to decide that Business and Professions Code Section 16600 was not implicated in the case.

Employers should be careful before deciding they can require employees to repay training costs and they should never take money from an employee’s paycheck without specific written authorization from the employee for that specific deduction. Even if the employee authorizes the deduction, the employer should ensure the employee receives at least minimum wages.

You can download an audio version of this article here: California Employment Lawyer Netcast for July 1, 2008.

The Law Office of Phillip J. Griego
95 South Market Street, Suite 520
San Jose, CA 95113
Tel. 408-293-6341
Original article by Robert E. Nuddleman, former associate of The Law Office of Phillip J. Griego.

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Phillip J. Griego represents employees and businesses throughout Silicon Valley and the greater San Francisco Bay Area including Palo Alto, Menlo Park, Mountain View, Los Altos, San Jose, the South Bay Area, Campbell, Los Gatos, Cupertino, Morgan Hill, Gilroy, Sunnyvale, Santa Cruz, Saratoga, and Alameda, San Mateo, Santa Clara, San Benito, Mendocino, and Calaveras counties.