No Free “Train” Ride for This Ex-Employee: Court Sides With Employer And Orders Quitting Employee To Pay Back Training Costs

In USS-Posco Industries v. Floyd Case (Ct. of Appeal A140457), published January 26, 2016, the Court of Appeal for the First Appellate District enforced an agreement requiring an employee to repay the costs of employer paid training if he quit his job within 30 months of completing the program. The Court held the repayment commitment signed by the employee did not violate any provision of the Labor Code and did not constitute a de facto non-competition agreement. The Court in its ruling affirmed the lower court’s granting of summary judgment to the employer, but reversed the trial court’s award of attorney’s fees.

Plaintiff Floyd Case was hired by USS-POSCO Industries (“UPI”) in 2007 as an entry-level steelworker. Because UPI could not find enough skilled “Maintenance Technical Electrical” (“MTE”) workers to hire, it agreed to pay its employees, including plaintiff, to attend MTE training courses. The courses included 135 weeks of instruction, 90 weeks of on the job training and 45 weeks of classroom work. The cost of the training was valued by UPI and Case’s union at $46,000.00. In exchange for paying for the employee’s training, UPI required the employees to “sign an agreement to reimburse a portion of their training cost” if they quit their jobs “within 30 months of completing the training.” Case agreed to the terms, and signed a written agreement in which he promised to “refund $30,000 of the expense of his training, less $1,000 per month of subsequent service at UPI” if he quit before the expiration of the 30 months.

Case quit UPI two months after he completed his training. When Case refused UPI’s demand for reimbursement, the company sued him for breach of contract and unjust enrichment. UPI sought $28,000 in damages – equating to the promised $30,000 less $1,000 per month for the two months he remained at UPI. Case filed a Cross-complaint against UPI, contending, among other things, that the repayment agreement was unenforceable both under the unfair competition statute of the Business and Profession’s Code, and as an invalid non-competition clause. UPI sought summary judgment on its complaint and Case’s cross-complaint, asserting the reimbursement agreement was valid and enforceable. The trial court granted the motion and awarded $80,000 in attorney’s fees to UPI.

The Court of Appeal affirmed the grant of summary judgment, although it reversed and remanded the award of attorney’s fees on the grounds that the trial court had used an older version of Labor Code section 218.5 governing the award of attorney’s fees in labor related lawsuits. The Court of Appeal rejected Case’s arguments that the repayment agreement violated California’s Labor and Business and Professions codes. The Court looked to the nature and intent of the training program, whether Case was forced to pay for it, and whether Case was required to complete the training to continue as a UPI employee.

The Court determined the training program was entirely voluntary. Because enrollment was not required, and UPI fronted all of the program’s training costs, the repayment agreement did not violate Labor Code section 450 which prohibits an employer from “compel[ling] or coerc[ing] any employee . . . to patronize his or her employer . . . in the purchase of value.” Similarly, since UPI did not require plaintiff to enroll in the program, did not charge him for attending, deduct the cost of the training from his wages, or make passing the MTE exam a condition of keeping his job, UPI’s requirement for reimbursement did not violate either the Labor Code or case law. (See, In re Acknowledgment Cases, (2015) 239 Cal.App.4th1498, holding an employer is not entitled to seek reimbursement where the employer developed its own program and mandated participation). Finally, the Court rejected Case’s argument that the repayment obligation constituted an invalid non-competition agreement under Business and Professions Code section 16600 (“every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void” and Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937 (any agreement that limits or prohibits an employee’s practice of “her profession, trade, or business” is forbidden).) The Court found that the repayment agreement did “not restrain Case from working for a competitor or any other entity” and in fact pointed out that “Case quit UPI and went to work elsewhere, and he was entirely free to do so.”

In the other notable portion of the opinion, the Court reversed the trial court’s award of attorney’s fees under Labor Code section 218.5. Section 218.5 applies to “nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions” and allows the “court to award reasonable attorney’s fees and costs to the prevailing party.” Prior to 2014, the section did not distinguish between “prevailing employers and employees.” The section was amended in 2014. Now, if an employer defeats an employee’s wage action, “attorney’s fees and costs shall be awarded . . . only if the court finds the employee brought the court action in bad faith.” Since there was no evidence Case brought his action in “bad faith” the award of attorney’s fees was incorrect and unauthorized.

The USS-Posco Industries decision is important in its reaffirmation of an employer’s right to seek reimbursement from an employee who receives employer paid tuition or other non-required training and then quits. California courts will enforce repayment obligations in written agreements, if the employer paid expense is for non “employer mandated” expenses. Thus, an employer can make an employee repay a college tuition loan, the cost of a training course, or other non-required classes if the courses or training are not required as part of the employee’s continued employment. The critical aspect is ensuring the employee’s repayment obligations for tuition benefits are spelled out in either the employee’s employment agreement or in a standalone repayment agreement.

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January 29, 2016