Reimbursement of job training costs
Can an employer require an employee to pay for job training costs?
The First District Court of Appeal recently decided whether an employee had to reimburse his employer for the cost of an employer-sponsored training program. In USS-Posco Industries v. Case (Jan. 26, 2016) 2016 Cal. App. LEXIS 49, the court considered whether a reimbursement agreement violated California law. It also determined whether the employer could recover its attorney’s fees from the employee if the employee’s challenge to the agreement was unsuccessful.
Mr. Case began working for USS-Posco Industries (“UPI”) as a Laborer and Side Trim Operator. The union that represented Mr. Case and other UPI employees negotiated an agreement with UPI in which UPI would train employees for Maintenance Technical Electrical positions. The agreement provided that UPI could require trainees to sign an agreement to reimburse UPI for a portion of the training cost if they voluntarily resigned within 30 months of completing the training.
Mr. Case was accepted into the training program, which was voluntary and not the only way to get a Maintenance Technical Electrical position. Mr. Case signed a reimbursement agreement. It provided that if he were terminated for cause or voluntarily resigned within 30 months of completing the training he would refund UPI $30,000 less $1,000 per month of subsequent service to UPI. Two months after Mr. Case completed the training he left UPI for a position with another employer.
UPI sued Mr. Case for $28,000 after he failed to reimburse it. Mr. Case sued UPI in the same case alleging that the reimbursement agreement violated, among other things, California’s Labor Code concerning wages (sections 221–223), bonds (sections 401–410), and employee expenditures and employer payment of costs of business operations (sections 450 and 2802(a)). The trial court found in favor of UPI in both UPI’s suit and Mr. Case’s counter-suit. The court also awarded UPI its attorney’s fees for successfully defending against Mr. Case’s claims concerning Labor Code sections 221–223.
On appeal, Mr. Case contended that the reimbursement agreement violated Labor Code sections 2802, 2804 and 450, which prevent employers from passing certain operating expenses on to employees. The court of appeal noted that sections 2802 and 2804 cover expenses that employees pay for and that they “necessarily incur.” Because UPI fronted the training costs and Mr. Case was not obligated to participate in the program there was no violation of sections 2802 and 2804. Similarly, there was no violation of section 450, which applies to compelled or coerced purchases from the employer.
The appellate court also concluded that the bond laws did not apply. Section 401 requires employers to pay for bonds only if they are required to do so. Section 402 prohibits the demanding of a cash bond. The training program was voluntary, and Mr. Case did not put up any cash and no deduction was ever made from his wages.
Mr. Case also asserted that the reimbursement program was an unlawful restraint on his trade (Business and Professions Code section 16600). The court of appeal reviewed a prior decision (City of Oakland v. Hassey (2008) 163 Cal.App.4th 1477), in which another court decided that a reimbursement agreement for a police officer training program did not unlawfully restrain the officer’s trade. That court reasoned that the agreement did not interfere with the officer’s opportunity to work for another department or employer. The court of appeal in USS-Posco Industries found that the same analysis applied in this case: the reimbursement agreement did not prevent Mr. Case from working for a competitor of UPI or any other employer. Indeed, he left UPI for another employer.
Mr. Case further contended that the reimbursement program violated Labor Code sections 221-223 as unlawful withholding or garnishing of wages. The court of appeal rejected this contention, noting that those sections address the proper payment of wages, and wages are not covered by an agreement to repay training expenses. It also found that while UPI’s lawsuit referred to the training program as an investment of approximately $150,000 per trainee in terms of wages, benefits, and training expenses, UPI only sought $28,000 for the training expenses.
Based on these conclusions, the court of appeal affirmed the trial court’s findings in favor of UPI for both UPI’s claims against Mr. Case and Mr. Case’s claims against UPI. The appellate court turned next to the trial court’s award of attorney’s fees to UPI for its successful defense to Mr. Case’s claims based on Labor Code section 221–223.
The trial court justified its award based on Labor Code section 218.5 in existence at the time if found in favor of UPI on both parties’ claims. But by the time the trial court ruled on the attorney’s fees request, section 218.5 had been amended. Both versions allow for attorney’s fees in an action for the nonpayment of wages to the “prevailing” party if that party requests them at the start of the action. Under the old version (prior to 2014), the same standard applied to employers and employees. The new version, however, allows an award to a prevailing employer only if the court finds that the employee’s action was brought in bad faith.
Mr. Case contended that the trial court should have applied the new standard, which was in effect by the time the court made the award of attorney’s fees. UPI countered that the new standard could not be applied retroactively.
The court of appeal noted that the general rule is that laws passed by the Legislature are applied prospectively (and not retroactively) unless the Legislature says otherwise. It also noted that changes to the law do not necessarily have retroactive impact even if application of the law involves evaluation of conduct occurring before the change. For example, changes to rules that apply to pending litigation, such as changing procedural or evidentiary rules, are considered to have prospective impact because they affect future proceedings in the case.
The appellate court determined that the Legislature was silent about retroactivity when it amended section 218.5. Consequently, the court had to determine whether the change had retroactive effect. It first noted that federal courts have concluded that changes in attorney’s fee laws, including the amendment to section 218.5, apply prospectively. But it is for California courts to interpret California laws. The court in USS-Posco Industries reviewed the history of California decisions on changes to fees and costs laws. Most California courts have concluded that a change in such laws apply to cases that are pending at the time of enactment. The court in USS-Posco Industries agreed with this majority rule, reversed the award of attorney’s fees to UPI, and returned the matter to the trial court to determine if Mr. Case’s claims were brought in bad faith.