The federal district court for the Middle District of North Carolina recently held that a training reimbursement program may give rise to a claim for improper classification of employees as exempt. In order to qualify for most of the “white collar” exemptions from minimum wage and overtime under the Fair Labor Standards Act (FLSA), employees must be paid on a salary basis. To meet the salary-basis test, employees must be paid a predetermined salary when due on a guaranteed or “free and clear” basis.
The plaintiffs were former employees who had participated in a leadership development training program through their workplace. Participants in the program were required to repay the defendant the training costs associated with the program if they were resigned or terminated without cause within five years after completing the program. The plaintiffs resigned shortly after completing the program, and defendant attempted to collect from them the costs of the training program. The plaintiffs sued, claiming that the repayment requirement constituted an improper deduction from their salaries in violation of the salary-basis test and that, as such, they were entitled to overtime pay.
The court refused to grant the defendant’s motion to dismiss, noting that even though the defendant had not deducted the training costs from the employees’ pay, the reimbursement requirement could constitute a violation of the salary-basis test. Although the court’s refusal to grant dismissal does not fully resolve the case, it serves as reminder that when an FLSA exemption is challenged, the burden is on the employer to prove “by clear and convincing evidence” that the exemption applies. As such, employers should be cautious when implementing repayment or reimbursement programs with exempt employees.