My Business Participates In Relocation Reimbursement. If An Employee Quits Within A Certain Period Of Time, Can My Company Lawfully Make The Employee Repay The Money?

Many employers in New York State either participate in relocation reimbursement or reimburse their workers for, certain expenses incurred outside the scope of the workers’ employment.

For example, a mid-sized or large business may reimburse a new employee who resides in a distant state for the expense of relocating to the employer’s state.  So, too, a large company may reimburse a promising employee for the tuition he incurs in attending graduate school at night.

If a company in Manhattan pays, or reimburses its worker for, certain expenses incurred outside the scope of the worker’s employment, and if the employee then leaves his or her employment with that company within a specified period of time, can the company lawfully require the employee to pay back the company for these expenses?  The short answer to this question is “yes,” but only where there is either:

1.  An express agreement between the company and the employee under which the employee agrees to remain employed by the company for a specified period of time in return for the company’s payment of certain of his expenses; or

2.  An express agreement between the company and the employee under which the employee agrees that, if he leaves the company within a specified period of time, he will repay the company for its reimbursement of certain of his expenses.

Under Manhattan’s Statute of Frauds, if the period of time for which the employee agrees to remain employed by the company is one year or more, then the agreement must be in writing.  See N.Y. Gen. Oblig. § 5-701(a)(1) (rendering void any agreement, not in writing and subscribed by the party to be charged with it, which “[b]y its terms is not to be performed within one year from the making thereof”).  As a practical matter, even if the period for which the employee agrees to work for the company is less than one year, the company should place the agreement in writing to preclude the employee from later disputing that the parties have an agreement or what the agreement’s terms are.

What the employer may not do, even if the employee leaves (or gives notice that he or she will be leaving) within the specified period of time, is to deduct, from the wages of the employee, the expenses which the employer paid.  Such a deduction from the employee’s wages is prohibited even if the employee expressly authorizes that deduction in writing.

This is the case because a deduction, from the wages of the employee, of expenses which the employer paid is not “for the benefit of the employee.”  See N.Y. Labor Law § 193 (prohibiting an employer from make any deduction from the wages of an employee, except for certain enumerated deductions which are expressly authorized in writing by the employee and “are for the benefit of the employee”).

If your company needs assistance or guidance on a labor or employment law issue and your company is located in the borough of Manhattan area, call Attorney David S. Rich at (347) 941-0760.