Requiring Employees to Pay Back Training Costs May be Illegal Under California Law -- In Re Acknowledgement Cases
Employers obviously benefit from a well-trained workforce. On the other hand, why invest in training when an employee can just quit (or be fired) and take his improved skills elsewhere. To avoid this scenario, many companies have instituted policies that require employees to pay back the cost of their training if their employment terminates.
The problem, however, is that such training pay-back programs may be illegal under California Labor Code Section 2802, which generally prohibits employers from passing on the costs of their business operations to employees.
For example, in In re Acknowledgement Cases, the plaintiffs challenged a Los Angeles Police Department (LAPD) policy that required new recruits to agree that if they left employment within 60 months of graduating from the Police Academy they would pay back a corresponding portion of their training costs.
As a matter of first impression, the Second District Court of Appeal held that Section 2802 requires that employers must remain financially responsible for all training costs, except for those costs incurred by the employee to obtain a legally required license.
[T]he broad purpose of Labor Code section 2802 is to require an employer to bear all of the costs inherent in conducting its business and to indemnify employees from costs incurred in the discharge of their duties for the employer’s benefit. It is consistent with this purpose to require that where an individual must, as a matter of law, have a license to carry out the duties of his or her employment, the employee must bear the cost of obtaining the license. It is also consistent with this purpose to require an employer to bear the cost of training which is not required to obtain the license but is intended solely to enable the employee to discharge his or her duties.
The record below established that the LAPD required 644 hours of training directly related to meeting statutory licensing requirements, as well as an additional 420 hours of non-statutory "department required" training.
The Court declined to decide whether, in such a hybrid program, it would be permissible to apportion the training costs between the employer and employee.
Rather, the case below had been tried by the parties under an "all-or-nothing" theory in which the pay-back policy would either be fully enforceable or entirely void. Any equitable apportionment defense had therefore been waived. And because the program purported to require employees to repay some training costs in violation of Labor Code Section 2802, the entire repayment program was therefore properly found to be unenforceable as "null and void."