USS-POSCO Industries v. Case: Employer Can Require Employees to Repay Educational Expenses

The introduction to USS-POSCO Industries v. Case (Cal.App. 1/26/16) gives a good summary of the case, so here it is (with a couple of edits):

Defendant and appellant Floyd Case [a union employee] voluntarily enrolled in a three-year, employer-sponsored educational program [that was the subject of an MOU between the employer and the union]. He agreed in writing that if he quit his job within 30 months of completing the program, he would reimburse his employer, USS-POSCO Industries (UPI), a prorated portion of program costs. Two months after completing the program, Case went to work for another employer. When he refused to reimburse UPI, the company sued for breach of contract and unjust enrichment. Case cross-complained, asserting the reimbursement agreement was unenforceable and UPI had violated the Labor Code and other statutory provisions in seeking reimbursement.

The trial court granted UPI’s motion for summary judgment on both its complaint and Case’s cross-complaint, and subsequently granted UPI’s motion for attorney fees for defeating Case’s wage claims. In granting the fee motion, the court applied the version of Labor Code section 218.5 in effect at the time of the summary judgment proceedings, rather than the version in effect at the time it awarded fees, which permits fees to a prevailing employer only when the employee’s wage claims have been brought in “bad faith.”

We affirm the summary judgment, but reverse and remand the attorney fees award. Under California Supreme Court precedent, statutory provisions that alter the recovery of attorney fees are deemed procedural in nature and apply to pending litigation.

The Court explained as follows:

The employer's voluntary, optional training program did not implicate Labor Code section 2802, which requires employers to indemnify employees for necessary expenditures or losses, or 450, which prohibits employers from requiring employees to patronize them. Case did not have to take the course, and UPI did not force him to do so. The Court distinguished In re Acknowledgment Cases (Cal.App. 8/12/15) (discussed here), in which the Court refused to allow the City of Los Angeles to recoup certain employer-mandated training expenses. Nor did the program implicate Labor Code sections 401 et seq., which prohibit the taking of certain bonds from employees.

The program did not violate Business and Professions Code 16600, which voids "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind." Case volunteered for the program and agreed to repay the training costs if he left UPI. The agreement did not prohibit or even limit him from working elsewhere, which he in fact did. It only required him to re-pay a prorated part of the training costs.

The agreement did not violate agreement did not violate sections 158(a)(5) and 159(a) of the National Labor Relations Act (NLRA), which prohibit employers from refusing to bargain collectively with employee representatives and provide that such representatives are the employees' sole bargaining agents. "An employee’s separate individual contract that is consistent with [a] collective bargaining agreement may be enforced." Case's MOU expressly authorized the reimbursement agreement, so the agreement was consistent with the MOU. 

The agreement did not lack consideration. UPI continued to pay Case his wages while enrolled in the program. In addition, Case received the training and, in consideration, agreed to repay a portion of the costs if he left. "That either Case or UPI could have terminated the agreement by ending the employment relationship at some point during the educational program does not render illusory the parties’ bargained-for exchange...." 

The agreement was not procedurally unconscionable. It was negotiated between UPI and the union, parties with equivalent bargaining power. The reimbursement provision was not a surprise, and Case could have obtained the training elsewhere if he so chose. 

Even if the agreement had been procedurally unconscionable, it was not substantively unconscionable. There was no evidence that the union colluded with UPI to overstate the training cost, and the agreement required Case to repay only a portion of it. 

Finally, the agreement did not violate Labor Code sections 221 to 223, which prohibit employers from recouping, withholding, or secretly paying less than agreed wages. 

UPI could not recover its attorney fees and costs from Case under the version of Labor Code section 218.5, which governs attorney fee awards in actions for the nonpayment of wages. Effective January 1, 2014, section 218.5 allows employers to collect such fees " only if the court finds that the employee brought the court action in bad faith." Although nothing in the legislative history indicated an intent to apply the amendment retroactively, under California law, "a new statute authorizing an award of attorney fees" or a statute "increasing or decreasing litigation costs, including attorneys’ fees" applies to actions pending at the time of enactment. This case was pending when the legislature amended section 218.5, and in fact the amendment went into effect before the trial court awarded UPI its fees. The court erred in not applying it. On remand, UPI would have to show bad faith to recover its fees. 

The opinion is available here.