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January 05, 2011
Did Repayment Violate FLSA?

A California police officer resigned from the force in less than 2 years after beginning her service. But her collective bargaining agreement, as well as a policy she signed, required her to pay back part of the money the department had spent in sending her to the police academy. She called that an illegal kickback.

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What happened. “Graham” finished her training and joined the Oakland police force but quit after less than 2 years. The agreements required her to refund, on a sliding scale, a percentage of the academy costs if she quit before working for 5 years. Her initial bill was $6,400, or 80% of the $8,000 training cost, from which the department subtracted accrued vacation and compensatory time, leaving her owing $4,450. But Graham contended that if she paid it, her salary for the last week on the force would have fallen below minimum wage, thus violating the Fair Labor Standards Act (FLSA).

The department then added a collection fee, adjusting her balance up to $5,268. Graham sued, on behalf of herself and others in the same situation, for civil rights and state law as well as wage-and-hour violations. A judge in federal district court dismissed all her claims, and subsequently rejected her amended complaint. Meanwhile, she had also sued for overtime pay. She dropped the second suit but appealed the judge’s dismissal of the first one to the 9th Circuit, which covers Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington.

What the court said. Graham pointed to a Department of Labor regulation interpreting FLSA: “Whether in cash or other facilities, ‘wages’ cannot be considered to have been paid by the employer and received by the employee unless they are paid finally and unconditionally or ‘free and clear.’ The wage requirements of the Act will not be met where the employee ‘kicks-back’ … to the employer … the whole or part of the wage delivered to the employee.” She argued that repayment for training was just such a kickback.

Although appellate judges had not decided a similar case, they cited a ruling from the 7th Circuit (IL, IN, WI) in which judges deemed a similar reimbursement scheme for firefighters to be the repayment of a loan, not a deduction from wages. So Graham’s case was again dismissed. Gordon v. City of Oakland, U.S. Court of Appeals for the 9th Circuit, No.09-16167 (11/19/10).

Point to remember: We find it surprising that this officer’s union had agreed to the reimbursement requirement for well over 10 years before she sued, and that she had signed, as a condition of employment, the policy. We’re also surprised that her attorney agreed to pursue her case.

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