Tuition Assistance Programs: Learning Without Getting "Schooled"

David Keene, II
April 14, 2008 — 3,135 views  
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Many employers provide tuition assistance benefits to their employees. Such programs are often viewed as “win-win” as the employee receives the money to pay or an education, and the employer has a better-educated employee. Employers often approve only those courses or areas of study that relate to the employee’s present position or anticipated career path within the company. For example, I have negotiated contracts with police officers where the municipality employer will help with tuition only if an officer studies criminal justice, public administration, or communications. Employers can—and should—take an additional step to ensure that the education they pay benefits them: require employees who leave their employment, voluntarily and/or involuntarily, within a given timeframe to repay the benefit. This serves two purposes: first, it retains employees as it creates an economic incentive for the employee to remain until the restitution-triggering period has elapsed; second, it ensures that the employer receives at least some of the benefit paid for through either a better-educated employee or a refund on its tuition. A repayment provision keeps an employee from immediately leaving with their “free” education. . -Enforceability: Executing a separate agreement- A tuition payment and repayment program must be put in writing. Let me repeat that for those of you skimming this article for the highlights: A TUITION ASSISTANCE PROGRAM MUST BE PUT IN WRITING. An oral understanding between employer and employee is insufficient. An employer cannot rely on a statement in its employee handbook that tuition assistance benefits are subject to repayment: you MUST have the employee sign a separate document acknowledging your tuition assistance policy and his obligation to repay if he leaves within a certain number of years. My advice is to create a stand-alone contract that is signed by both the employer and employee, setting forth all the terms of any tuition assistance, including the restitution requirement if the employee leaves within a reasonable time of receiving the benefit. An employer should require the employee to sign a new agreement every time it disburses tuition assistance benefits to the employee. Any agreement should clearly state that the employee’s academic performance is irrelevant. Whether the employee earns all As or flunks every course, if he leaves within the restitution period, he must repay the tuition. Also, don’t give your employee thousands of dollars in advance of anticipated tuition. Have your employee present you with a tuition bill and pay only that amount that is due. -Employee departure and collection- No matter how great your work environment, there are going to be times when an employee leaves and does so during the tuition recovery period. There are three possible outcomes with an employee’s decision to leave: 1. The employee voluntarily makes good on his or her obligation to repay from his or her own funds. Obviously, this is the best outcome for the employer. 2. The second, more likely, possibility is that the employer holds employee funds at the conclusion of employment from which it can set off the employee’s obligation. (But an employer must be very careful when doing this.) 3. The third possibility is that the employer must take some form of legal action to collect from the employee. -Set off and filing suit- Most employees are frequently due some form of termination pay when they leave a job, e.g., payment for unused vacation time. Employers can sometimes set off the amount they owe the employee with the tuition restitution the employee owes them. There are, however, limitations: 1. The obvious limitation is the dollar amount; tuition may far exceed the employee’s bi-weekly check and unused vacation time. 2. The less obvious limitation is legal. Some states prohibit employers from setting off amounts owed to them from an employee’s termination wages. 3. In addition, some of the states that do permit setoffs, require prior written authorization from the employee. An employer would be well served to build authorization into the tuition assistance contract, rather than waiting until the employee gives notice to ask him or her to authorize a final wage deduction. 4. Beware of violating federal law by, for example, deducting so much tuition that the employee fails to earn the minimum wage. If the employee refuses to refund the tuition assistance and a setoff is unavailable, the employer must resort to legal process. Collection costs money. Minimizing those costs is the key to an economically successful restitution program. As noted previously, executing a carefully drafted contract at the time the tuition benefit is extended will reduce the cost of collection. An even better cost reduction method is to change the character of the benefit from a grant to a loan. -Executing a promissory note- Instead of extending the benefit outright, employers should consider extending the benefit as a loan, providing that repayment is waived if the employee remains with the company for the prescribed time. There are several benefits to this approach. The first is that it is easier and cheaper to collect on a note than to sue for breach of contract, particularly in states that permit notes to contain confessions of judgment. Second, the note also could provide for the payment of interest from the employee’s voluntary termination until payment. Third, since the employer has extended credit to the employee, the employee has an incentive to protect his or her credit rating. Most importantly, promissory notes enjoy a secondary market. The employer may forgo collection on its own and sell the note to a collection agency or an entity specializing in the purchase and collection of third party obligations. While the employer may receive little in return, it will show the former employee that you mean business. One final note: almost all employers I counsel are loathe to sue an employee, but have no problem with the idea of selling a note and allowing a collection company to pursue the former employee. Before doing this, keep a couple of things in mind: Unless you’re Wal-Mart, who is going to know if you sue an employee? Next, don’t underestimate the power of serving a complaint. A former employee may have no intention of repaying tuition money, but once they receive service of a complaint at their home or new place of employment, they may have second thoughts. The cost of drafting and serving a complaint is much cheaper than selling a promissory note for pennies on the dollar. -Conclusion- Before drafting a tuition policy or promissory note, you should contact counsel. Your attorney will be aware of the benefits and dangers of drafting such documents in your jurisdiction, and can advise you on the best path to follow.

David Keene, II

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David Keene, an associate in Baker Donelson's Tri-Cities office, concentrates his practice in the area of labor and employment law. Mr. Keene has experience in a multitude of labor and employment areas including negotiating collective bargaining agreements for both private and public sector employers; representing employers in grievance and issue arbitrations; representing employers in all matters, including elections and unfair labor practices, before the National Labor Relations Board and state labor boards; helping clients maintain union-free workforces; handling unemployment claims from initial applications for benefits through court appeals; counseling clients on a multitude of federal employment laws, including the ADA, FMLA, ADEA, and FLSA; litigating employment discrimination claims; and representing individuals against unions. Mr. Keene has been published in The Labor Lawyer, Labor Law Journal, and numerous other publications, and has taught seminars on a wide variety of labor and employment topics.