Repayment Agreements

By Larry Feheley

Many employers have the foresight to have employees sign repayment agreements when they are advanced money (like loans), or benefits (like tuition reimbursement), or property (like uniforms or computers). These agreements typically provide that the employee agrees that they must repay the Company if they do not return the property, repay the loan, or leave the Company within a certain time period after the education or training is provided. These repayment agreements usually state that the employee authorizes the Company to deduct and withhold compensation due to the employee, in the regular course or at the termination of employment, and to apply the amount withheld to the repayment obligation.

In two recently-reported Opinion Letters, the Department of Labor has taken objection to such repayment agreements [Opinion Ltr. No. 2185; Opinion Ltr. No. 2186]. The Department concludes that the repayment agreement is illegal, to the extent that the amount withheld reduces the employee's pay below the required minimum wage (or overtime) level. The Department of Labor takes this position even though the employee has signed the agreement, acknowledged the debt, and specifically authorized the wage deduction.

Although it may be remote that an employee would challenge the deduction in these circumstances, the view of the Department of Labor is that an employee must be paid at least the minimum wage for hours worked, and an employer may withhold only those amounts which exceed the minimum wage payment to the employee.