When Can an Employer Seek Reimbursement for Training Costs Advanced to an Employee?
November 7 2011
Lawyer Answer: It depends.
Here, that answer is not simply a dodge but is instead a reflection of what can be some complicated legal terrain. The question of advanced training costs arises in a number of situations: (1) where an employer advances costs for training to obtain a license or certification that is required by an ordinance or statute; (2) where such certification or licensure is not required by statute or ordinance but the employer requires it as a condition of employment; and (3) where the training is neither a requirement of statute, ordinance or by the employer, but reimbursement or supplement of such training costs or tuition is provided as a benefit.
The answer to the question involves a number of laws, including the provisions of the Fair Labor Standards Act and the California Labor Code. Depending on the nature of the reimbursement or repayment obligation, tax laws and wage deduction rules may also be involved. The short answer is that employers can sometimes permissibly seek reimbursement of advanced costs for licensure or certifications required by law, can generally not seek reimbursement for training that the employer imposes as a requirement of employment and may seek reimbursement of a tuition or training cost benefit on terms agreed to in advance. This is a fact specific inquiry and employers are well advised to talk to counsel about any reimbursement, loan forgiveness or deduction program for such advances and costs.
Many employers also complain that they invest in training of an employee only to lose that employee to a competitor once most of that training has been completed, but before the training employer has recovered the costs of the training. Employers often seek to restrict or limit an employee’s ability to seek employment elsewhere (for a period sufficient for the employer to reap the benefit of the training they provided) and/or to require an employee to reimburse the employer for the cost of training if they leave employment prior to the expiration of that period. Improperly drafted agreements of this kind can constitute contracts for a specified term (the polar opposite of at will employment) and may violate some Labor Code violations. Where repayment of such costs is permitted, the employer must also consider the tax effect of incremental loan or cost advance forgiveness. Tax advice should be sought in structuring such a program.
Finally, if early termination repayment is permitted, the employer must exercise care to ensure that any deduction of wages is permitted under California law.