Wage Law

Without running afoul of the Fair Labor Standards Act or various California Labor Code provisions, a public entity is permitted to contract with employees to have the workers reimburse training costs if they leave their jobs within a certain time period. At least, the employer can do so if the employee fails to allege a violation of Labor Code § 2802. Nonetheless, employers cannot withhold a worker's final paycheck as a set-off to cover the expenses. City of Oakland v. Hassey (2008) 163 Cal.App.4th 1477.

The City of Oakland sued appellant Kenny D. Hassey for breach of contract after Hassey failed to reimburse the city (as agreed) for the costs of training him to become a police officer with the Oakland Police Department. Hassey filed a cross-complaint against Oakland and respondent Richard Word, the chief of the Oakland Police Department, alleging that the agreement to repay Oakland for training costs violated the Fair Labor Standards Act (29 U.S.C. §§ 201-219 (FLSA)) and various state laws. Specifically, the cross-complaint alleged causes of action for deprivation of civil rights (42 U.S.C. § 1983); violation of the FLSA; violations of Labor Code sections 221, 223, 432.5, and 450; “unlawful contract” (Civ. Code, §§ 1667-1668); “void contract” (Bus. & Prof. Code, § 16600); and unfair competition (Bus. & Prof. Code, § 17200). More notably, the cross-complaint failed to assert that the repayment agreement violates Labor Code sections 2802 [employer shall indemnify employee for all necessary expenditures and losses] and 2804 [any contract waiving provision invalid]. (Campos v. Anderson (1997) 57 Cal.App.4th 784, 794, fn. 3.

The trial court granted Oakland’s motion for summary judgment on its complaint, granted its motion for summary judgment on Hassey’s cross-complaint, and denied Hassey’s summary judgment motion on both complaints. The Court of Appeal concluded that Hassey failed to establish that the agreement to reimburse Oakland for training costs violated the FLSA, although Oakland’s withholding of Hassey’s final paycheck to cover his debt did.

The opinion was subsequently modified, and a petition for rehearing was denied. The modification was noteworthy, because it noted that one of the reasons Hassey might have lost was that he didn't rely on a statute that might have savd his case.

Appellant's petition for rehearing is denied. The opinion filed June 17, 2008, is modified as follows: Add, as the last three sentences of the eleventh paragraph in part II.A.2. of the opinion, "We decline to address Hassey's argument, raised for the first time in his reply brief, that the repayment agreement violates Labor Code sections 2802 [employer shall indemnify employee for all necessary expenditures and losses] and 2804 [any contract waiving provision invalid]. (Campos v. Anderson (1997) 57 Cal.App.4th 784, 794, fn. 3 [points raised in reply brief for first time will not be considered absent good cause].) We note that Hassey's answer to Oakland's complaint did not rely on Labor Code sections 2802 and 2804, and his cross-complaint did not allege causes of action based on them." The above modification does not effect any change in the judgment. [emphasis added]

Would Hassey have won a defense or cross-claim based upon Section 2802? Here's what section 2802 provides:

(a) An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful.

(b) All awards made by a court or by the Division of Labor Standards Enforcement for reimbursement of necessary expenditures under this section shall carry interest at the same rate as judgments in civil actions. Interest shall accrue from the date on which the employee incurred the necessary expenditure or loss.

(c) For purposes of this section, the term "necessary expenditures or losses" shall include all reasonable costs, including, but not limited to, attorney's fees incurred by the employee enforcing the rights granted by this section.

Since the training was a prerequisite to getting the job in the first place, it's unclear. Moreover, the opinion relies somewhat on a 7th Circuit case entitled Heder v. City of Two Rivers (7th Cir. 2002) 295 F.3d 777, in which public policy concerns based upon the employer's status as a public entity, and particularly, an agency providing for public safety, suggest that a similar case brought against a private entity might face a different standard. Because section 2802 wasn't raised by Hassey until his appellate briefs, we'll have to wait for some other case to answer that question.

The Supreme Court denied a petition for review and a request for depublication. Justice Kennard voted in favor of review. You can download City of Oakland v. Hassey here in pdf or MS Word format.