In Gordon v. City of Oakland, (— F.3d —-, C.A.9 (Cal.), November 19, 2010), the United States Court of Appeals for the Ninth Circuit addressed the issue of whether a city violated the minimum wage provisions of the Fair Labor Standards Act (“FLSA”) when it required a police officer to repay a portion of her training costs when she voluntarily left the city’s employment before completing five years of service. The court of appeal held that the city did not violate the FLSA.
The City of Oakland (“City”) has a policy that requires a police officer to repay the City for a portion of his or her training costs is he or she voluntarily leaves employment with City before completing five years of employment. The policy is contained in the collective bargaining agreement between City and the Oakland Police Officers’ Association. The agreement requires “that officers who voluntarily separate from the City’s employment prior to completing five years of service must repay a pro rata share of their police academy training costs.” The cost of training is $8,000. If an officer separates from his or her employment prior to one year of service, he or she will be required to repay the whole $8,000. The amount that must be repaid decreases for each year of service completed.
Courtney Gordon (“Gordon”) left her position as a police officer after less than two years of employment with City. The amount of Gordon’s gross pay for her final two weeks of work was $2,385.48 and she received a final paycheck reflecting this amount. On the day of her resignation, City notified Gordon that it was entitled to recover $6,400 in training costs. In partial satisfaction of its claim, City withheld paychecks for Gordon’s accrued vacation time in the amount of $1,295.57 and compensatory time off in the amount of $654.77. City demanded Gordon pay the remaining balance of $4,449.66. Gordon eventually paid City the amount due plus a collection fee.
Gordon filed a lawsuit in federal district court alleging that City violated the FLSA. The district court dismissed Gordon’s FLSA minimum wage claim.
The issue before the court of appeals was whether City’s action in requiring Gordon to repay the $6,400 at the time of her resignation violated the FLSA. Pursuant to the FLSA, a covered employer must pay its “employees at least the federal minimum hourly wage every workweek.” City is a covered employer under the terms of the FLSA. Neither employees nor labor unions are allowed to waive the protections of the FLSA.
Gordon did not allege that City paid her below the federal minimum wage for any specific week. Therefore, the court found “the only way Gordon has stated a cognizable claim is if her payment to the City for a portion of her training costs is a “kick-back payment.’” Title 29 C.F.R. § 535.31 provides, in part, “The wage requirements of the [FLSA] 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 court concluded that the payment made pursuant to the reimbursement agreement was a loan, not a kick-back. Gordon voluntarily accepted a loan to pay for her training. Instead of requiring that officers obtain training or certification prior to beginning their employment with City, “City elected to essentially loan police officer trainees like Gordon the cost of their police academy training.” Gordon agreed City would forgive her obligation to repay the loan at a specified rate and, if she stayed employed for five years, City would forgive the whole amount of the loan. Gordon, however, chose to resign prior to fulfilling her obligation. After she resigned, City was “free to seek repayment of Gordon’s training debt as an ordinary creditor.” Gordon’s repayment of her training was not a kick-back and therefore the reimbursement agreement does not violate the FLSA because City paid Gordon at least minimum wage for the final week she worked for City.
The court noted that a California court of appeal had reached the same conclusion in Hassey v. City of Oakland, 163 Cal. App. 4th 1477 (2008). In Hassey, a police officer that was departing from his employment with City challenged City’s demand for reimbursement of training costs pursuant to the same policy at issue in Gordon’s case. The California court also concluded that the reimbursement payment was not a kick-back under 29 C.F.R. § 535.51 and that the reimbursement agreement did violate the FLSA. In the Hassey case, however, the California court found that City violated the FLSA when it withheld Hassey’s final paycheck to reimburse itself for his training costs because City in effect paid Hassey nothing for his final period of work. This was not an issue in Gordon’s case because City did not withhold her entire final paycheck to satisfy her debt.
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