Cost Recovery Measures For Tuition Reimbursment Agreements

As employers continue to strive for the competitive edge in the business and labor markets, tuition and training benefits are commonplace. Many employers have recognized that such programs promote the retention of knowledgeable, proficient, and productive employees.

With training costs on the rise, employers are discovering that employees leverage these benefits from the early going, and the investment more than pays for itself where the employee is retained for the long term. However, where the employee goes to work for a competitor shortly after completing the training or coursework, the employer has subsidized the competitor’s training budget.

A decision by the Michigan Court of Appeals validated a Confessed Judgment or Cognovit as an expense recovery tool for employers. Historically, employers have required that employees sign some kind of tuition agreement as a condition of employment or training. In the event the employment is terminated for any reason within a stated time, the employee must repay the employer some specified portion of the training costs or tuition paid on their behalf. Prior to this decision, the Michigan Supreme Court explained that these agreements are enforceable only in limited circumstances, such as where the training or coursework is optional, but provided no additional insight. Unfortunately, in addition to the training expenses, questions surrounding the validity and enforceability of the agreement require the time and expense of a lawsuit.

Confessed judgment provisions appear to circumvent limitations imposed on tuition agreements, and produce a cost-effective means of recovering training costs from employees who terminate earlier than expected. Confessed judgments are distinct contractual agreements that allow the employee to consent in advance to the employer obtaining a judgment without notice or hearing, and precludes the employee from claiming any defense he may have to the obligation.

Because any lawsuit involving a confessed judgment is won immediately, employers save the considerable time and expense associated with normal breach of contract cases to recover the repayment obligation. When offering tuition and training reimbursement benefits, it is prudent for employers to require tuition agreements and confessed judgments as a condition of employment and training. In order to assure maximum returns and recovery under any such plan, employers are well advised to speak with a member of Berry Moorman’s labor and employment law group.