Recouping Training Costs Poses Legal Challenges

​After spending significant money on training sessions, employers may feel the investment was a waste if an employee leaves shortly thereafter. Some employers require workers to pay back the cost of training in that situation, but there are some legal pitfalls to consider before enforcing that type of policy.

"In some cases, the facts and circumstances may make it worthwhile to pursue collection, but in many cases, employers would be wise not to do so," said Daniel Pyne, an attorney with Hopkins & Carley in San Jose, Calif.

Recouping training costs is permissible if the training is voluntary and related to job skills, and if the employment contract stipulates repayment for training costs if an employee leaves the job within a certain time period. Employers can get an employee's written consent to recoup voluntary training costs at the time of hiring or before the training starts.

Recouping the cost "depends on what kind of agreement you have with employees about that training and whether that training is unique. It depends on the type of training," said Courtney Leyes, an attorney with Fisher Phillips in Memphis, Tenn. "I represented a hair salon where the owner provided schooling for his stylists. He sought to recoup those costs. That is training that is unique to that industry."

Making the wrong decision about training costs can lead to problematic lawsuits for employers. "They could find themselves in a wage and hour dispute with that employee," Leyes said. "It could create a bigger mess than the cost of recouping that training."

Beyond legal considerations, trying to extract money from someone who may not have any could be a waste of time.

"Even when an employer may be entitled to pursue recovery of the training costs, they face the same challenges as any creditor seeking to collect on a debt. The employee may not have the money to pay, and the cost of pursuing collection can sometimes make the process impracticable," Pyne said. "If the employee does not have the money to pay, the employer must decide whether it makes sense to pursue collection through litigation. In many cases, litigation does not make sense." Employers can avoid this problem by not paying the training costs upfront and instead reimbursing employees for the training costs only after a certain amount of time has passed while they remain at the job. Sometimes employers deduct the full amount of training costs from the employee's final paycheck.

In 2021, a former technician with a Western Pennsylvania conveyor company filed suit in U.S. District court, alleging that the company ran afoul of wage laws when it withheld two weeks of his final pay to cover training costs. The court dismissed the case.

In June, the Consumer Financial Protection Bureau (CFPB) requested public comment on training repayment agreements. "Employer-driven debt, like other debt, could pose risks to consumers, including overextension of household finances, errors in servicing and collection, default and inaccurate credit reporting," the CFPB's request stated.

State Laws

State laws vary on this matter, so multistate employers may need to adjust their policy, based on the state where the employee performed the work. Some states don't allow payroll deductions to cover training costs.

"Employers in California cannot recoup the cost of training from employees when the employer mandates the training. Those expenses are considered a cost of doing business for the employer," Pyne noted. "If employers force employees to bear the cost of mandatory training, the employer may be subject to class-action lawsuits and various penalties under the [state] Labor Code, as well as being liable for the attorney fees of the affected employees. It is possible, in certain circumstances, to recover the cost of training that an employee pursues on a truly voluntary basis, however."

In addition, California recently passed a law that requires acute-care hospitals to pay for training costs for workers who provide direct patient care.

Be careful to avoid deducting training costs from workers' paychecks if doing so would put them below the state or federal minimum wage, Leyes said. Even for employees who are exempt from minimum wage, improper deductions might negate their exemption, making the employer responsible for paying back wages.