On November 19, 2010, the Ninth Circuit held that an employer can demand that a departing employee repay training costs without violating the Fair Labor Standards Act.

In Gordon v. City of Oakland, an employee challenged  the City of Oakland's policy requiring repayment of a portion of the police academy training costs if a police officer voluntarily left the City's employment before completing five years of service.

The repayment agreement was part of the collective bargaining agreement between the City and the Oakland Police Officers Association, which compelled repayment of a pro rata share of police academy training costs and permitted the City to deduct the amount owed from the officer's final paycheck.   The repayment obligation was also included in the "Conditional Officer" that all police applicants were required to sign before attending the academy.

Just prior to completing her second year of service as an Oakland police officer, Gordon resigned.  On the same day as her resignation, the City's Fiscal Services Division notified Gordan that the City was entitled to recover $6,400 (eighty percent of $8,000) in training costs due to her early separation, and further notified her that it was withholding payment for accrued but unused vacation and compensatory time (a total of $1,295.57) in partial satisfaction of the repayment obligation.  Gordon sued.

The FLSA requires all covered employers to pay their employees at least the federal minimum hourly wage every workweek.  29 U.S.C. section 206.  Neither individual employees nor a labor organization can waive the protections of the FLSA and negotiate a pay rate that is less than the statutory minimum wage. Barrentine v. Arkansas-Best Freight Sys., 450 U.S. 728, 740-41 (1981).  The court held that neither the Conditional Officer nor the collective bargaining agreement limited Gordon's right to receive at least minimum wage for the work performed during her final weeks as an Oakland Police Officer.

The City conceded that if it had withheld the entire final paycheck in satisfaction of the claim for training cost reimbursement, it would have violated the FLSA.  But, it did not.  The amount actually paid to Gordon, even with the deduction for the training reimbursement, exceeded the minimum wage.

Gordon further contended that the repayment obligation was an unlawful "kick back" payment prohibited by 29 C.F.R. 535.31.  Relying upon the earlier state court decision in Hassey v. City of Oakland, 163 Cal. App. 4th 1477 (2008), as well as the Seventh Circuit's decision in Heder v. City of Two Rivers, WIsconsin (7th Cir. 2002) 295 F.3d 777, the court held that the training reimbursement payment was a voluntarily accepted loan, not a kick-back.   The court noted that rather than requiring applicants to independently obtain police training prior to beginning employment, the City chose to loan police officer trainees the cost of academy training, and indicated that it would forgive the debt owed on a pro rata basis established by years of service, with the full debt being forgiven after completing five years of service.  As such, the  Ninth Circuit held that the cost of training was a loan, and the repayment schedule was forgiveness of a debt rather than a kick-back.

Training reimbursement provisions have been controversial for some time.  But, with this recent decision, it is clear that such contractual obligations are permissible under the Fair Labor Standards Act.

The Ninth Circuit recently held that an employer who changes its shift schedule to accommodate its employees' scheduling desires, may reduce the employee pay rate so as to pay its employees the same wages received under the former schedule, so long as the rate reduction was not designed to circumvent the provisions of the Fair Labor Standards Act.

Nurses wanted the option of working 12-hour shifts instead of 8-hour shifts in order to have more days away from the hospital.  The medical center agreed to provide a 12-hour schedule plan in exchange for receiving a lower base wage plus four hours of built-in overtime (i.e., overtime for hours worked in excess of eight per day).  The result: nurses who worked the twelve-hour shift would make the approximately the same amount of money as they made on an eight-hour schedule.  The agreement also prohibited the employer from requiring that employee's work additional shifts absent a medical emergency.

An employee argued that the hospital cannot reduce the hourly wage when it changed the shift schedule in order to avoid the additional costs associated with overtime on this preferred schedule.  The court disagreed, citing a variety of cases that permitted providing alternate schedules on a budget-neutral basis.

The court held that this plan did not violate the Fair Labor Standards Act, as it met the fundamental purpose of ensuring that each employee received "a fair day's pay for a fair day's work" and  that employees would be protected "from the evil of 'overwork' as well as 'underpay'."  The court was particularly persuaded by the fact that the alternate schedule and pay rate was the product of a negotiated agreement.  The court stated:  "To us, [the hospital's] actions seem perfectly reasonable, were requested by the nurses (who work the schedules), and are the result of a bargained-for exchange between the hospital administration and [the union]."  The court went on to note that it was not for them to "decide whether the agreement was an ideal, or even preferred method of contracting ... only whether the agreement in question was permissible under the FLSA."

The Court of Appeals rejected a claim by the California Correctional Peace Officers Association, which had alleged that the State violated Labor Code sections 226.7 and 512, as well as Wage Order 17, by failing to provide its members with proper meal breaks. 

Relying  in-part on an earlier decision in Johnson v. Arvin-Edison, the appellate court found that those Labor Code Sections, as well as the Wage Order, did not apply to public employees. The Johnson case had held that Labor Code sections do not apply to public employers unless the section expressly so provides.  The court in the CCPOA case thus determined that since neither Labor Code section 226.7 nor section 512 expressly stated that it was applicable to public entities, the benefits of those provisions could not be enforced against the state.  

It was a surreal moment trying to explain in the context of a serene federal courtroom that there are no holidays at the Alameda Police Department because the operation runs 24/7.  As a result of the operational needs, the City had elected not to give police employees paid holidays or to pay them extra when required to work a designated holiday.  Rather, the City chose to take the monetary value of the thirteen City holidays, divide it by the number of pay periods, and include that fixed sum in every paycheck in lieu of providing holidays.  In other words, the City spread out the total value of the year's holiday over the course of the year rather than pay it simply in the pay period during which the holiday occurred so that it did not have to worry about the operational impact of giving time off or paying extra on a holiday.

But the City refused to consider this regularly received additional compensation as part of the "regular rate of pay" for overtime purposes.  As a result, the Alameda Police Officers Association filed a lawsuit entitled Hart v. City of Alameda, claiming that the Fair Labor Standards Act compelled inclusion of that sum in its regular rate of pay for overtime purposes.  It won.

The court held that although under section 7(e) of the Fair Labor Standards Act, an employee's "regular rate" of pay does not include "payments made for occasional periods when no work is performed due to vacation holiday [or] illness", in Alameda the additional  holiday compensation was paid "every pay period, regardless" of whether or not a holiday occurred. As a result, this was not  an additional payment due because of a holiday that fell within the pay period but, rather, a fixed payment regardless of whether a holiday occurred.  As such, the court found that it had to be included in the regular rate of pay.