On this episode of What the Hell Just Happened? Paul Edwards sits down with CEDR Solution Center Advisor Grace Godlasky to discuss an issue that can bring some frustration to employers – having a new employee quit after their training period. Employers everywhere really feel this loss after investing their resources in getting a new employee trained and up to speed, so it is tempting to ask that employee to pay back those training hours if this happens. However, that can lead to some trouble. Listen as Paul and Grace analyze the risk level associated with particular predicament and hash out how to handle it in a safe and legally compliant way.
Voice Over: You’re about to listen to another episode of What The Hell Just Happened?! Join Paul Edwwards and his guests as they discuss and sometimes even solve some interesting HR problems.
Paul: And… I’m gonna go off the rails sometimes and talk about whatever I want.
Grace: Hey, Paul.
Paul: Hey, Grace.
Grace: So, I’ve got a new puzzle for you, and this one’s really really fun.
Grace: So, I’ve been on the phone with members and I’ve been hearing a lot of the same issue recently. And I think this is because we work at CEDR with businesses that are really hands-on. And when you’re in a hands-on industry you have to train people but you can’t just plop them down in front of a computer and say, “watch this module, now you’re trained”. You have to actually show them how to hold the instrument or show them what to do with the patient. And that’s a huge time investment.
Paul: Mmhmm, right.
Grace: And I think recently managers and owners are just kind of tired of getting burned with dumping all of this effort into someone who just leaves. They get 6 months into just barely pass training and they quit.
Grace: So, they’re trying to be creative and think of different ways to protect themselves and you can’t really blame them.
Grace: But one idea that we’ve heard is that they want their new hires, that don’t last at least a year, to pay them back one to two dollars per hour per training hour. And we haven’t heard a ton of that before. I’m sure we’ve heard some variation of this but this idea… my heart sink when I heard it for the first time and I know your heart’s probably sinking right now too.
Grace: But what do you think about that?
Paul: Okay, so I do have a little bit of advance notice of this because I saw it in one of the tickets in ZenDesk. But the member calling, the member was actually from Medi-Spa, which made me think back on this. So, adding one more thing about that training that you were saying the hands-on. A lot of times this is about expanded training or training which requires certification. It requires some significant amount of investment and sometimes even paying for courses and classes and so there’s education requirements.
There’re all sorts of things to get mixed into this. But when it comes down to it, typically the employer is going to be paying for some time where an employee is getting some training in order to do what it is that they do or expand on their capabilities. And where we’re seeing it pop up because it used to come up in dentistry all the time because we’ve been at this since 2006.
Paul: And I think that I did a pretty good job through the last 15 years. We, as a company, have kind of cured dentistry of trying to do this. If you work with CEDR, you know that you can’t claw this money back, and we’ll get into why it’s really a serious problem if you try to do it. But we’re also we’re starting to see it in the medi-spa industry. So, we’re working a lot and we always have. We’ve had clients for many for over a decade that are medi-spas, but that industry is really growing and we’re picking up a lot more and we’re teaching at their conferences providing continuing education to that segment of medical. And this is where we’re seeing this pop up because it feels like a good idea.
Paul: It’s like a consultant gets up in front of the room and says, people, I got a way for you to hold on to your folks.
Paul: When you invest a bunch of time and money and training in them and here’s my idea, we’re going to tell them if they don’t last for a year, they got to pay us back a certain amount per hour for the wages that we’ve paid them for training and that should hold them in their place.
Grace: And the problem is.
Paul: Well, the problem is that it’s a wage and hour violation.
Paul: I think the simplest way to put this and we’ll talk about this a little bit more here because I kind of want to unroll this for everybody, unpack it for everyone. You get a real idea about how risky it can be, but the main thing is that you are required as an employer to pay for training and that’s it. The Federal Labor Standards Act, the FLSA requires you to pay for this time. So, you can’t get an employee to give you back the money, you shouldn’t threaten them to give you, that they have to give you back some money on something that you’re already obligated to pay for.
Paul: It’s as if you’re trying to change your own obligation underneath the law.
Paul: And it and I also have some serious issues with you are changing their rates of pay. So, we all think I think everybody get knows if they don’t know it. They know it in their heart. You can’t come up at the end of the day or at the end of the week when you’re going to pay someone and say, “you know, we agreed to $12 per hour but based on your performance, how it went this week, we weren’t that busy. I’ve decided to pay you $10”. Right? I mean, we can’t do that for a variety of reasons. It violates a bunch of state laws. It also violates the overtime rules.
Paul: I mean, there’s would be a lot there that if I were to go down that rabbit hole.
Grace: Right, it’s like a domino effect of messing with people’s wages on the back end.
Paul: Yeah. So, at the very front end of it as HR professionals, we know you can’t do this because it’s a violation of wage and hour rules.
Grace: Right, right, and there’s a bunch of different ways you can slice it.
Grace: Well, I think that probably the those who are floating this idea…they didn’t… I would love to say they’re the most creative people ever and came up with it themselves. But they probably pulled it from somewhere. And in some world, this is fine somewhere.
Paul: It is.
Grace: It is fine.
Paul: But not in this context.
Grace: But not in this context, right. So, it’s kind of like you can’t necessarily point to the, well, the hospital down the street does this with their doctors. It’s taking something from a different context where it might be completely fine and applying it to a totally different context probably unknown where it creates all these different issues. It’s just the nature of the position and the nature of also the type of training.
Paul: Yeah, and they’re missing out on, they’ve missed the other components of it. They’ve heard about it. They’ve seen it written about.
Paul: But they’ve not learned about the entire component of even when it’s being applied to say a doctor who’s come to do a fellowship or to work in an emergency room and is committed to being there for 6 months a year even or even longer.
Paul: There are other components to it and they are more incentives…than they are takeaways.
Grace: Right, and does it matter? I mean I can just hear people out there like steam coming out of the ears like “oh no this can’t be right”. So, what if you get somebody to sign a contract saying that this is fine upfront?
Grace: So, I agreed to this.
Paul: Yeah, so what if they agree to it? Well, you can’t an employee can’t agree away their rights. I mean if they could then when we get all of our employees to agree to no over time.
Paul: And when we get them to agree that they can’t file a sexual harassment case against us.
Paul: Even if sexual harassment occurs, even if overtime occurs. Wouldn’t we just put agreements in place for people to give up their rights and the answer to that is you cannot as an employer. It doesn’t matter what they agree to. In fact, when you create that agreement, I just want everybody to consider this, if you create a policy or an agreement like this with an employee. Which I would presume that you would think that would be the right thing to do, because how else are you to enforce getting the money back from them if they leave within the year. You’re actually creating evidence. That’s called evidence. So, evidence is good when it works in your favor. Evidence is bad when it’s proof you violating federal wage and hour laws.
Paul: So, you don’t want that kind of evidence in place.
Grace: Definitely and yeah, you can’t, I always say to our members, you can’t paperwork or contract your way out of the laws.
Paul: Your obligation as an employer.
Grace: Yeah. And from working with folks and seeing both sides of the coin here, there’s definitely somebody out there “well, I’m not going to actually enforce it I just kind of want to sign it to deter them from leaving. What about the deterrent?” And I get the deterrent factor because there are a lot of things we do as employers. And sometimes even in policy writing where it’s, well, we’re not going to chase that ball all the way into the end zone, but we want it to be there.
Paul: We want the option.
Grace: We wean that option. So, what about that is kind of what you said right. It’s like as soon as you put that in writing, even if you don’t plan to enforce it, it looks like…
Paul: It looks that way and in some states, it’s against the law. So, you’re actually committing, you could be committing a misdemeanor or in other states where there’s a wage theft rules, this could be a felony. If you were to actually do it.
So, now you have a document that you both signed that says, “I’m going to commit a felony against you when it comes to withholding wages from you when you leave here. I’m not going to follow the law and pay you properly”. So, it’s as a threat, it’s just as bad and you also don’t want anything in place with employees that show that you don’t understand a specific area. Or let’s say a specific subsection of a general area where you have to comply with which is around wage and hour.
Paul: So, if you’re messing up in some other way, they will, an attorney or an investigator will use this lack of knowledge in this other area against you in every way that they possibly can.
Grace: They will.
Paul: They will.
Grace: And it’s tricky because it’s like generally how they view these things is it’s not the employee’s job to know the rules. When you’re in the shoes of an employer. It’s the employer’s job.
Grace: So, it would always be interpreted against the employer.
Grace: Always. So, even if the employee signed, they’re going to be able to say “I didn’t know”.
Paul: And they’re right. They’re actually right.
Grace: Yeah. So, what can people do? I mean, I want to be like an employer advocate here and that’s what we do at CEDR. There’s got to be some other way that they can protect themselves that isn’t so dangerous.
Grace: Well, I want to cover two things too. Two other additional things before I move to the incentive that we mentioned before. I want to cover that when you do this sort of thing, you’re killing a couple of that, you’re first of all, you’re it’s a direct assault on At-Will Employment. This is the company store model. This is what happened in the 1800s and the 1900s, which actually brought about At-Will Employment, which was that you would become indentured to the company because you lived in the company town.
Paul: You rented from the company and it was like, well, you’re always behind on what you and your family need in accordance with your pay and you can really never leave this company. If you do, you have to pay us back all this money.
The other one is that I think one of the most powerful tools, done properly, written properly, are your concern reporting tools. They help mitigate damages. We’ve talked about this all the time in our podcast. How’s it mitigate damage? Well, if I don’t know that there’s a problem, how could I solve it? So, if we let an employee go and they make up a new issue after we’ve let them go and they say, “I wasn’t being treated properly. I was being sexually harassed” or whatever that looks like.
We always go back to why didn’t you tell us? Why didn’t you let us know? Had you let us know, we would have corrected it. Even if you may mistake and you have to pay or you have to correct it in some way, the fact that you didn’t know or weren’t informed and they were obligated to inform you is a big deal. And it can really make the damages a lot less.
So, I couldn’t inform you Grace, you’re the owner, so I’m talking to you as the owner. I quit. I filed a lawsuit against you for being sexually harassed and your satellite office. There was an associate there, that doctor was definitely sexually harassing me and everybody else in that office. And the reason why I didn’t report it and I put up with it for a year before I finally quit was because if I did report it to you, you were going to claw back several hundred if not thousands of dollars from me and I wasn’t going to be able to pay my bills.
Grace: I couldn’t afford, yeah.
Paul: And so, I didn’t tell you and I lived with it for a year and now I’m back and I want to make you pay for that year.
Paul: I just wanted to drop that because that’s real.
Grace: Yeah. It is.
Paul: That’s a wonderful… it’s a terrible argument for one of our members to pay.
Grace: It is, but you can see I mean even as a person listening out there a jury would eat that up with a spoon. I mean it’s such a believable…
Paul: It’s true. It’s actually a real thing. So, you don’t want to put things that would mess with your At-Will Employment. You don’t want to put things that would mess with your concern reporting and you don’t want to write an agreement or create something circumstance where you’re actually violating wage and hour laws and you’re documenting that through some kind of an agreement with the employee. Now, you ask me what can we do. Incentivize.
Paul: If you stay with me and that’s what’s happening with those doctors. They’re called golden handcuffs.
Grace: We haven’t used that word yet. Yeah. We’ve been talking around it. So, all this whole model of the claw.
Paul: It’s a golden handcuff.
Grace: It’s called the golden handcuffs and they’re not always illegal in every context if you have that situation where you’re not already required to pay. You could use this in very limited context but normally we try to talk people out of golden handcuffs on the front end for that exact reason is that it’s such a narrow set of circumstances.
Paul: It’s such a narrow set of circumstances but the premise or the concept, I love. So, in a version of a golden handcuff…let’s just talk in a broader sense.
Paul: You’re a doctor and there’s a rural area and they say “if you will come here out of med school or out of whatever. If you will come here and you will stay here and be in service to us for three years, we will pay off all of your student debt. At the end of that three years, you can leave and go do whatever you want to but if you leave before that considerable student debt is not going to be on us. It’s going to be on you”, and by the way, there’s all kinds of components in there where the agreement between the employee and the business is all copasetic. It’s all kosher.
Grace: It’s been negotiated. It’s been ironed out and it’s a totally different set of circumstances because in that case, you weren’t already required to pay off their schedule.
Paul: You were not.
Grace: And that’s how it’s kind of distinguished in that phrase golden handcuffs. In that context means something totally different than if you pull it over on-the-job training context.
Paul: Yup. So, there are many ways that we could incentivize and we can do it with employees. So, I’ll give an example. We have, the example is we have a dental practice, let’s use dental practice. But it could be a medi-spa… but it’s in a state where in order for one of the employees to be able to kind of step up to the next level they’ve got to get a state certification. So, maybe it’s an to be able to do injections in that state, or whatever that might look like. They have to go and they have to take this course as a cost of the course. They have to take the course and they have to do it maybe outside of work or maybe they do it inside of work. Anyway, what we can say is that once you complete that and you stay here for a certain amount of time… 3 months, 6 months, a year, we will reimburse you this amount as a reward for staying with us.
Grace: Delayed reimbursement. It’s always the most beautiful swap out for the golden handcuff.
Paul: It is the most beautiful swap out and if we were getting the weeds enough, it’s got to be substantial enough that the employee can’t, well, it’s got to be substantial enough that it would incentivize them to stay.
Grace: Right. Get your 50 bucks later, right.
Paul: But we’re not clawing back anything. We’re saying if you stay and you perform and you do well then, the following things would happen. Now, look, if you do that again what we see the mistake we see made with this is someone strikes out on their own. These are typically people who believe that they can do their own handbooks and their own agreements. They can go online and get something and then take it and make it their own. And what you do is you write a separate agreement about this thing that we’re for if it’s done right, and you kill your At-Will status and inside your employee handbook and all those other things that we were worried about.
Paul: So, if you have a program like this, again, you need to consult with an HR professional or an attorney who knows what they’re doing and make sure that all the little puzzle pieces fit together.
Grace: Yes, absolutely because delayed reimbursement could go wrong even though it doesn’t come with it the same, the same issues.
Paul: It’s a different set of issues that you can create for yourself if this isn’t something that you don’t do for a living.
Grace: But it’s a little bit easier than yanking it back once it’s out of your hands and I guess that’s the beauty of delayed reimbursement is the money hasn’t left your hands yet.
Paul: It has not.
Grace: So, you’re not asking for it back at any point which is one of the tricky parts about the golden handcuffs.
Grace: Are there other workarounds?
Grace: I can think of one.
Paul: Can you think of one? Okay, what is it?
Grace: For the $1 to $2, I want to give a nod to, it is expensive to train somebody. We put a lot of training into our employees here at CEDR. We know that first hand.
Paul: And when we lose somebody in the first month, it hurts. It hurts in the 6th month. It hurts in a year.
Grace: Absolutely, and you can just feel like you’re on this hamster wheel. I’m always training this person and I’m always just in this. So, I think you could, if you have that equivalency of the time that I’m investing, you can always do a lower training rate of pay. And say, hey, we are not promising but if we get through this training period, we would be willing to consider that one to two dollars per hour raise.
Grace: Or, lower training rate of pay and if we get to this point in our employment, we’re at will so we’re not promising that, but if we get to the one-year mark, we’d be willing to consider a one-time bonus or something like that.
Paul: Love it.
Grace: Bonuses aren’t as clean and pretty as they could be either. But those are a couple of other workarounds that I could think of that don’t carry with it the wage and hour violation.
Paul: Well, this takes me back to pay bans too. When your entry and you let’s say you’re entry-level at some, I don’t mean entry level for the job. You enter into a position and let’s just say it starts at $19 an hour. The pay ban runs from $19 to $28 an hour. Well, what do I have to do to get to $28 an hour faster?
Paul: Well, time of service is going to get you there in some ways. But how about certifications?
Paul: The length of service and, all those things can…
Grace: Success factors.
Paul: Can shoot you up the pay ban and I like that incentivized method too. You know, same principle.
Grace: Yeah. Protecting yourself, protecting your time but not sticking your neck out there for…
Paul: Can’t call this stuff back. It doesn’t.
Grace: The DOL to find you. So, really fun, new context for an old problem maybe.
Paul: Yeah, yeah.
Grace: And you see the logic where it comes from but then we as HR professionals…
Paul: Are like “no!”, Right. I know. Yeah.
Grace: Don’t do it.
Paul: Don’t do it, but we have. We always have. Almost always we have a better way or a different way to go about it.
Grace: Truly, it’s whenever I hear any idea like this from a member, I always try to say, let’s get you to your goal a safer way.
Grace: And that’s really, I think at the heart of a lot of what we’re doing in the Solution Center is we’re going to find a less risky way to get you to your business goal.
Grace: So, thanks for chatting through that.
Paul: What a nice way to put that, Grace. Thanks for bringing me another curve ball. That was a good one.
Grace: This is a good one.
Paul: Thanks Grace.
Grace: Alright. Have a good one.
Paul: You too.
Voice Over: Thanks for joining us for this week’s episode of What The Hell Just Happened? do Paul a favor; share this with your network. If you have an HR issue or a question, you’d like us to discuss on this show, send it to podcast@WTHjusthappened.com. For more HR advice and insights from Paul and his team of experts, you can also join the private Facebook group, HR Base Camp, or visit HRbasecamp.com. Make sure you tune in next week. And remember: better workplaces make better lives.