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Demand for Repayment of Training Costs Did Not Violate FLSA

In Gordon v. City of Oakland (9th Circuit, Nov. 19, 2010), the Ninth Circuit Court of Appeals recently ruled that the City of Oakland did not violate the minimum wage provisions of the Fair Labor Standards Act (“FLSA”) when it required its employees to repay a portion of their training costs if they voluntarily left employment from the city before completing five years of service.

In Gordon, the city paid $8,000 in training costs for the plaintiff when she began working for the city.  Under an agreement between the plaintiff and the city, the plaintiff agreed to pay back a pro-rated amount of the training costs if she voluntarily left work before completing five years of service.  Before completing her second year of work, she resigned.  Under the agreement, she was required to repay the city $6,400.

The city gave the plaintiff a final paycheck of $2,385, which reflected her hourly pay for 60 hours of work.  The city also gave the plaintiff a notice that she needed to repay $6,400 for her training costs.  In partial satisfaction of her training costs, the city withheld the paychecks for the plaintiff’s accrued and unused vacation ($1,295) and compensatory time off ($654).  The city also demanded a repayment of the remaining balance ($4,449, plus a collection fee) from the plaintiff.

The plaintiff paid the costs of her training, and then sued for violation of the FLSA.  She argued that she technically received “negative” pay for her last pay period, because she was required to “kick back” the cost of repayment to the city.  Therefore, she argued, that by paying back money to the city, she received less than the minimum wage for her last pay period.

The court disagreed with the plaintiff, and ruled that it was lawful for the city to require the plaintiff to repay the costs of training.  The court also stated that the city did not violate the FLSA, because it paid the plaintiff an amount exceeding the minimum wage in her final paycheck.   Finally, the court stated that the demand for repayment was not a “kick back,” as defined by the FLSA’s regulations.  Rather, the city was acting as any ordinary “creditor” in seeking repayment of the training costs.

You can read a copy of the court’s decision here.