The Ninth Circuit Court of Appeals has recently held that the City of Oakland, California did not violate the Fair Labor Standards Act (“FLSA”) when it required its police officers to repay the City for the cost of their training if they voluntarily resigned before completing five years of employment. (Gordon v. Oakland, No. 09-16167 (9th Cir. Nov. 19, 2010)).

In Gordon, the City and the bargaining unit for its police officers had entered into an agreement which required police officers to repay the City a pro rata share of their police academy training costs if they voluntarily separated from the City’s employment prior to completing five years of service. For example, a police officer who resigned after one year of service would have to repay 80% of the training costs whereas a police officer resigning after four years of service would only have to repay 20%. A police officer who resigned after five years of service would owe nothing to the City for training cost reimbursement. The agreement further provided that any repayment would be due at the time of the officer’s separation and that the City could deduct amounts due from the officer’s final paycheck.
 

Courtney Gordon, the Plaintiff-Appellant, was hired under this agreement, and resigned after only one year of service. On the day of Gordon’s resignation, the City informed her it was entitled to recover $6,400 (eighty percent of $8,000) in training costs. Accordingly, the City withheld income from Gordon’s final paycheck, but only in partial satisfaction of Gordon’s debt. As a result, Gordon received at least minimum wage income in her final paycheck, but was still accountable to the City for the remaining balance of her training costs.

Gordon then filed a class action lawsuit, seeking damages and declaratory relief under the Fair Labor Standards Act (“FLSA”), 42 U.S.C. § 1983, and various California state laws. At issue was whether the City’s paycheck deduction for training cost reimbursement constituted a “kickback” in violation of FLSA regulations (29 C.F.R. § 531.35: “The wage requirements of the Act will not be met where the employee ‘kicks-back’ directly or indirectly to the employer ... the whole or part of the wage delivered to the employee.”). The district court found that because Gordon’s paycheck still exceeded the minimum wage, despite the deduction, the City’s reimbursement demand did not violate the FLSA. The Ninth Circuit Court of Appeals affirmed.

Gordon is significant because it marks the latest Circuit Court of Appeals to uphold a training cost reimbursement agreement under the FLSA. Following the Seventh Circuit’s reasoning in Heder v. City of Two Rivers, Wisconsin, 295 F.3d 777, 781-82 (7th Cir. 2002), the Ninth Circuit called the City’s reimbursement agreement “a voluntarily accepted loan, not a kick-back.” Thus, the court explained, the cost of the training was a loan the City made to its officers, repayment of which was forgiven after five years of employment. And as long as the City paid its departing officers at least the statutory minimum wage, it could collect the training costs as any other ordinary creditor could, without violating the FLSA.

This entry was written by Milton Castro.