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Employer’s Attempt At Repayment Of Training Costs Can Backfire Causing Employee Misclassification Under the FLSA

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By Andrew J. Henson and Michael A. Kornbluth

henson-andrewA growing practice among employers is to require new hires to sign a Training Cost Agreement (TCA), which puts employees on the hook for the cost of their on-the-job training if they quit or are fired before completing a period of years of work for the employer. The concept is something like the evil twin of the signing bonus. However, a recent court ruling in the Middle District of North Carolina suggests enforcing these agreements may backfire and cause an employee who was previously exempt from overtime laws under the Fair Labor Standards Act to suddenly become subject to overtime laws, leaving the employer liable for back pay for any hours of unpaid overtime.

kornbluthmichaelUnder the FLSA, employees are entitled to “a fair day’s pay for a fair day’s work.” This includes overtime for nonexempt employees who work more than forty hours in a week. Exempt employees are not entitled to overtime. The determination of who is exempt and who is not can be complicated, and has been subject to fierce dispute in the courts. Typically employees classified as exempt are those whose job duties can be considered administrative, executive, or professional. But, these white collar workers may still qualify as nonexempt employees, if the way they are paid does not satisfy what’s called the “Salary Basis Test.”

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