Friends:

 This month’s employer tip concerns an employer’s ability to seek reimbursement from an employee for the cost of education or training.   

 Many employers train or educate employees at considerable expense. Can employers be reimbursed if an employee leaves shortly (within a few years) after completing the training/education?  Can you deduct the cost of training/education from an employee’s wages?

 The good news is that employers can require employees to execute training/education cost repayment contracts if the employees are contractually obligated to repay the cost of education/training in the event that the employee leaves employment before a certain date. (See Hassey v. City of Oakland (2008) 163 Cal.App. 4th 1477.) In order to increase the chance that such a repayment contract will be upheld in the event of a legal challenge, the amount of repayment should be based upon the actual and realistic estimated expenses and should be pro-rated based upon the total time worked. For example, an employer might forgive 20% of the cost each year for a five year period.  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.

 The bad news is that employers cannot deduct the cost of the education/training directly from an employee’s wages.  Instead, the contract must be treated like a loan where the employee provides reimbursement to the employer. Employers should not make the mistake of withholding any amount owed under the contract as that could subject you to penalties which far exceed the amount actually owed. In the event an ex-employee does not repay the loan, the employer’s remedy will likely be found in small claims court or a limited civil action, depending upon the amount owed.

 Of course, always consult a qualified employment attorney to determine the lawfulness of any actions taken in the scope of an employee training/education cost repayment contract.

 

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About Douglas A. Plazak

Doug Plazak is a Partner with the Riverside law firm of Reid & Hellyer. Doug joined Reid & Hellyer in 2007 and focuses primarily on business litigation and employment law. He also practices bankruptcy law, representing both creditors and borrowers.

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