Skip to main content

Tuition Repayment Contract Enforced by Employer

Employee training and tuition assistance or reimbursement programs can be very costly. The worth of such programs is open to question when employees are free to move to other employment before the employer has reaped the benefit of its investment. In a 2 to 1 decision, the Michigan Court of Appeals has approved a procedure to bind the employee to a minimum period of employment after such an investment under penalty of an obligation to repay the training costs to the employer.

Tuition Contract

In Sands Appliance Services v Wilson, the employee signed a "tuition contract" at the inception of his employment as an appliance repairman. The contract provided that the employee would receive job training over a three year period at a value of $50 per week. Each week of continued employment after the training period would equal "payment" for one week of training. Thus, the employee was required to maintain employment for an additional three years (six years total) to fully erase the training debt. If the employment relationship terminated for any reason before six years, the employee was responsible to repay the balance of the training debt to the employer.

When the employee left employment after two and one-half years, the employer commenced suit to recover the balance of the training debt. The evidence established that the employee received valuable training; he received specialized instruction, study books and accompanied other technicians on service calls to learn the trade. The employer asserted that the purpose of the tuition contract was to recoup a portion of the money expended to train the employee if the employment ended prematurely. The employee countered that the tuition contract amounted to indentured servitude and violated the Michigan Wages and Fringe Benefits Act.

Appeals Court Sides with Employer

The Court of Appeals sided with the employer. It recognized that the Act prohibits an employer from demanding a fee, gift, tip, gratuity or "other renumeration or consideration" as a condition of employment or continued employment. It further found that administrative regulations issued pursuant to the Act proscribed "bonds to ensure that the employee completes the employment period." But the court decided that the tuition contract did not involve a condition of employment, as the employee paid nothing during the course of his employment, nor was he forced to stay employed. The employer had the right to enforce the terms of the contract only upon the employee's "unemployment." The Court likened the employer's right to recover training costs to its right to receive reimbursement for the employee's personal telephone calls.

Not Against Public Policy

The Court also rejected the employee's argument that the tuition contract was against public policy, analogizing to a situation where an employer furnished tools to an employee, for which the employee must pay if he retained possession after termination of employment.

As a final matter, the Court determined that the tuition contract was not an adhesion contract, i.e., an unreasonable agreement which cannot be enforced because it was the product of unequal bargaining power forced upon the employee. The court noted that the employer discussed the tuition contract with the employee before hire, and the employee could have refused to leave his existing job to be employed with this employer, and it ruled that the tuition contract was not, itself, unreasonable.

Lessons Learned

The lesson from the Sands Appliance Services case is that a signed agreement for the repayment of training costs or tuition reimbursement by an employee is valid if:

  • The training or education is bona fide and designed to provide the employee with skills to perform his new duties;
  • The training or education program is voluntarily undertaken by the employee with knowledge of its repayment terms; and
  • The cost assigned to the training and the repayment plan are reasonable.

Michigan Supreme Court Reversed

The Michigan Supreme Court reversed the decision in the Sands Appliance Services case. The supreme court held that the tuition contract did violate subsection 8(1) of the Wage Fringe Benefits Act (WFBA), The court found that the contract was a condition of employment and that the defendant could not have worked for the plaintiff without it.

The court also stated that there are tuition contracts that do not violate the WFBA. These type of contracts offer to fund an employee's education with the understanding that the employee will remain with the employer for a specified period of time. The difference is that acceptable tuition contracts are optional and are not a condition of employment or of continued employment.

Copied to clipboard