A California court recently upheld an employer’s right to condition free training on continued employment in the matter of USS-POSCO Industries v. Case, No. A140457 (Jan. 26, 2016). The defendant/appellant in the litigation, USS POSCO Industries (“UPI”) had originally hired Case as an entry-level Laborer and Side Trim Operator. UPI faced a shortage of skilled Maintenance Technical Electrical (“MTE”) workers. To address this shortage, via a memorandum of understanding with the pertinent union, UPI established a program to train a number of current employees to qualify them as MTEs. The program required 135 weeks of instruction, 90 weeks of on the job training and 45 weeks of classroom work. UPI estimated it cost over $46,000 per employee. During the program, UPI also paid the participant’s regular wages. If a participant successfully completed the program and then passed UPI’s MTE test, he would be assigned to an MTE vacancy. Participation was voluntary, but each participant had to agree that, if he voluntarily left UPI’s employment within 30 months after completion, he would reimburse UPI $30,000 of the expense of his training, less $1,000 per month of subsequent service at UPI.

Case voluntarily enrolled and completed the program. Two months later, he resigned and went to work for another employer. When he failed to pay his $28,000 reimbursement obligation, UPI sued. The trial court ruled in favor of UPI, and the court of appeal affirmed. On appeal, Case contended the reimbursement agreement was an invalid restraint on employment under Bus. and Prof. Code section 16600, which provides in relevant part, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” The court had little difficulty rejecting his argument, however.

The court reasoned that Case’s participation in the program was voluntary, the money he agreed to pay was for advanced educational costs, and he was not restrained from leaving UPI and working anywhere else, which he in fact did. As the court explained, “repayment of the fronted costs of a voluntarily undertaken educational program, the benefits of which transcend any specific employment and are readily transportable, is not a restraint on employment.” The court distinguished two precedents: one voiding a claw back of an employee’s pension rights if he chose to compete, the other voiding a liquidated damages provision that amounted to a price for choosing to compete.

The takeaway: despite California’s well-known public policy against non-compete agreements, employers may require an employee to repay the costs of voluntary educational benefits should the employee choose to leave within a reasonably defined time period, and compete, after receiving the benefit.