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Is it legal for a company to require an employee who attended company-sponsored training to sign an agreement whereby the employee is required to stay with the company for a set number of years?

Jerry Miller's Profile

Answers

Anonymous
(VP Finance) |

I have seen it done for degreed programs (graduate school, MBA, etc.) but I would caveate that it might be subject to state labor laws. Also, note that the U.S. military does this as well. I have also seen this in practice for acceptance of relocation packages. I would also check your industry practices as it might be a recruiting barrier if you have this policy and your competitors do not.

Thomas Phillips
Title: President
Company: Effective Agreements
(President, Effective Agreements) |

I agree that it makes sense that state labor laws would apply, though you would have to check with an attorney. One aspect of what you said was, hopefully, an oversight. I would assume any such arrangement would have to be signed before the training, not after!

(Agent, JKS Solutions, Inc.) |

Public accounting firms used to do this and probably still do. They amortize the cost of the program over a number of years that the employee agrees to and if the employee leaves then they have to repay the unamortized cost. Usually the term is 3-5 years.

In industry companies will cover a certain percentage or flat dollar amount of new degree or program and they generally view this as an employee benefit, so they don't ask for repayment. I've known several people to work for companies who attain a new degree then leave for greener pastures.

If the program qualified you for a new trade and the company paid 100% of the cost as part of a retooling program then I can understand why they would want to see some return on that investment related to productivity or production capacity and can understand why they would want to recover that cost.

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

My understanding is that, as stated, it is illegal (so is in the employee's benefit as they can walk away, as forced labor is unenforceable outside of the aforementioned public service / military).

However Valerie's comment is accurate; you effectively loan them the $ for the training, and expire that loan over time, so it isn't a requirement so much as an incentive to stay.

Topic Expert
Malak Kazan
Title: VP, Special Projects
Company: ERI Economic Research Institute
(VP, Special Projects, ERI Economic Research Institute) |

It is legal for such agreements. The complexity of such arrangements is collection of the costs if the employees leave prior to the "repayment period". Most states prohibit making deductions from the final paycheck for these purposes irrespective of a signed agreement if the deductions preclude the employee from being paid for hours worked. If the final paycheck includes pay for non work hours like PTO, then you could potentially regain the payment for an amount equal to the non-work PTO. Do this leg work prior to paydate since there are also requirements to issue the final paycheck within a stipulated amount of time. Hope this helps.

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

I would check with people who have left to determine if they were really pursued for these monies. If they aren't pursued, I don't see it as an issue.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

It is always good to check with an attorney, but Patrick's point is also very valid. I worked for two very conservative companies that offered this type of benefit. It is very common in financial services. Yet I have never heard of a company requiring repayment.

Employment law is funny. Something may be legal but not followed, if it benefits the employee. For example, many states have an "at will employment policy." While it is legal, I doubt you will ever find many companies that have called an employee into their office and said, "I am invoking my at will rights, pack your bags." Legal yes, in practice no.

Trish Meyer
Title: VP of Finance
Company: GMI Holdings
(VP of Finance, GMI Holdings) |

I have seen companies do this if they sponsor relocation or sometimes even a large sign-on bonus. Usually the employee has to repay if they leave within x number of years. And it is legal.

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