Protect your investment

There are legal means to recoup your costs if an NRCA ProCertified™ employee leaves your company

The benefits of NRCA ProCertification™ have been well-publicized, and there is no doubt the program is gaining momentum. However, some roofing contractors have expressed concern about incurring the costs associated with NRCA ProCertification and whether an employee can then, presumably, take the certification and work for a competitor. Creating a company culture that instills pride in employees and advances their careers is perhaps the best way to address employee retention. However, there are at least two legal means to address this concern, but each comes with legal challenges.

Noncompete agreements

If you are hesitant to invest in NRCA ProCertification because you fear employees will leave to work for a competitor, you can use what commonly is referred to as a noncompete agreement. A noncompete agreement can keep a former employee from performing certain job duties for a competitor within a certain geographic area for a limited time. Roofing contractors often make the mistake of believing these types of agreements are unenforceable. Although these agreements can be subject to legal challenges, if an agreement is limited to protecting an employer’s legitimate business interests, it generally will be enforced.

Historically, enforcing a noncompete agreement against a salesperson or estimator has been easier than enforcing one against a field worker. This is because roofing contractors have a legitimate business interest in protecting pricing information and the ability to obtain new work. The risk of having a salesperson or estimator work for a competitor who can then underbid the employee’s former employer for future work is a risk worth protecting, and courts have shown little hesitation enforcing noncompete agreements in these instances.

When a field worker is bound to a noncompete agreement, courts have been reluctant to enforce the agreement. Field workers not engaged in sales or estimating argue there is no legitimate business interest in keeping them from working for a competitor. Unless a laborer has a particular skill or expertise, such as, perhaps, NRCA ProCertification, the argument often results in the agreement not being enforceable. Indeed, in Colorado and Georgia, for example, the law generally provides that only employees who qualify for the executive exemption from overtime pay can be subject to noncompete agreements.

But NRCA ProCertification changes the landscape. With the investment you make in NRCA ProCertification, along with the advantage you have over the rest of the market as a result, you certainly have a legitimate business interest in protecting your investment and market share. Although a case involving NRCA ProCertification has yet to be litigated, you now may have options previously unavailable to roofing contractors looking to enforce a noncompete agreement against a field employee.

Of course, any true noncompete agreement needs to be reasonable in terms of duration, scope of restricted activities and scope of geographic restriction. In most instances, a one- or two-year restriction that keeps a professionally certified employee from working for a competitor is considered reasonable. Any noncompete agreement that extends beyond two years may be challenged as going beyond what is necessary to protect the legitimate business interests of roofing contractors. Certainly, the argument can be made that a time restriction equal to the time it will take the roofing contractor to find a replacement employee and train that individual to achieve the professional certification held by the former employee is reasonable.

Regarding restricted activities, it is important a noncompete agreement only keeps a field employee from performing those job duties for a competitor that were performed for the former employer. A roofing contractor has no legitimate business interest in keeping a field employee with professional certification from being an office manager for a competitor, for example. This is why it is important not to include a list of prohibited activities that is overly broad in your noncompete agreement. Limiting the scope of the restricted activities to only those job duties performed for your company and included with the employee’s professional certification is all that may be necessary to protect your legitimate business interests.

For geographic restriction, courts generally will enforce a noncompete agreement if the geographic restriction is limited to where the field employee actually performed roofing work for the roofing contractor as opposed to a geographic restriction that encompasses any area where the roofing contractor does business.

Reimbursement agreements

Notably, in California, noncompete agreements are unenforceable. In other states, such as Georgia, despite you having legitimate business interests in protecting employees who have achieved NRCA ProCertification, courts may refuse to enforce a noncompete agreement against a field employee. But roofing contractors in these states are not without hope. Another potential solution is a reimbursement agreement.

If properly drafted, you can require a field employee who is achieving NRCA ProCertification to repay or reimburse your company the expenses incurred if the employee leaves the company within a certain time after achieving NRCA ProCertification.

A typical reimbursement agreement requires an employee to reimburse the employer a percentage of the expenses incurred in obtaining the employee’s professional certification. The percentage to be reimbursed or repaid declines over time, and, eventually, if the employee remains employed with the roofing contractor for a certain time period after obtaining the certification, no money is owed back. But like noncompete agreements, reimbursement agreements are subject to challenge if not properly drafted.

One primary challenge to reimbursement agreements is requiring reimbursement violates federal law, which requires wages be paid free and clear to employees. The wage requirements of the Fair Labor Standards Act, which provides for minimum wages and overtime pay for nonexempt employees, will not be met if an employee repays directly or indirectly to the employer or another person for the employer’s benefit the whole or part of the wage delivered to the employee.

For example, if you require an employee to pay for NRCA ProCertification, it would violate federal law if the cost of the certification cuts into the employee’s minimum or overtime wages. The issue of ensuring wages are paid free and clear is best addressed by only requiring the employee to provide reimbursement of the employer’s cost of NRCA ProCertification after the employee leaves the company.

For example, in Courtney Gordon v. City of Oakland, Gordon was provided police training by the City of Oakland, which cost the city $8,000. Gordon signed an agreement at the time the training was provided that required her to reimburse the city a sliding percentage of the expenses the city incurred depending on how long she remained employed by the city after training was complete. When Gordon resigned from the police department, the reimbursement agreement stated she owed $6,400. She argued reimbursing the city caused her to receive less than the federal minimum wage during her final workweek. The U.S. Court of Appeals for the Ninth Circuit disagreed.

In approving the reimbursement agreement, the court interpreted the arrangement as repayment of a voluntarily accepted loan. The court noted that instead of requiring applicants to independently obtain their training before beginning employment, which the city could do by only hiring individuals already possessing the training certification, the city elected to essentially loan Gordon the cost of training. The agreement provided the city would forgive the repayment obligation after five years of service.

However, Gordon chose not to serve five years. Despite the debt owed the city, the court concluded the city satisfied FLSA’s requirements by paying Gordon at least the minimum wage for her final week of work. Therefore, the city was free to seek repayment of Gordon’s training debt as an ordinary creditor, according to the court.

To avoid any issue about wages being paid free and clear, do not recover NRCA ProCertification expenses through a deduction from an employee’s final paycheck; rather, recoup the expense through payments to be made by the employee after the employment relationship terminates.

Indeed, in City of Oakland v. Hassey, the court ruled withholding an employee’s final paycheck to cover a reimbursement violated the minimum wage requirements under federal law. But subject to state law, an employer would be able to recover expenses through offsetting such costs against any accrued vacation or leave time earned by the employee and otherwise payable to the employee.

In Courtney Gordon v. City of Oakland, Gordon was a nonexempt employee entitled to the minimum wage and overtime protections provided by FLSA. Employees who are exempt from the minimum wage and overtime protections also have challenged whether reimbursement agreements act as an improper deduction from an exempt employee’s salary, thereby jeopardizing the exempt status of the employee. Although a court has yet to rule on this specific issue, there is one court case you should review regarding reimbursement agreements.

In Ketner v. Branch Banking & Trust Co., a federal district court in North Carolina ruled requiring exempt employees to repay the costs of a training program if they left employment within five years could indicate the workers actually were nonexempt. The court in this case was ruling on the employer’s motion to dismiss the case. In denying the motion, the court determined the policy effectively meant the salary could be reduced because of variations in the quantity of work or, put another way, the length of employment.

Consequently, the employees in the Ketner case could be entitled to overtime pay for all hours worked in excess of 40 hours during the time they were subject to the reimbursement agreement. The case eventually settled out of court.

Agreements requiring employees to reimburse employers for training or certification costs after the employment relationship terminates also have been challenged on the grounds these agreements are, in fact, noncompete agreements unenforceable under applicable law. Interestingly, in Colorado, the law voids noncompete agreements except for employees who qualify for one of the white collar exemptions under FLSA; a second exception is provided for recovery of education and training expenses for an employee who has served an employer for less than two years.

Similarly, at least one federal court has determined a properly drafted reimbursement agreement is not the same as a noncompete agreement.

In Heder v. City of Two Rivers, the U.S. Court of Appeals for the Seventh Circuit determined a reimbursement agreement that required any employee leaving the city’s employ within three years to reimburse the city for the cost of training did not violate Wisconsin’s law on noncompete agreements. The court ultimately concluded the agreement was not linked to competition at all. The court relied heavily on the fact that the obligation to repay was unconditional even if the employee left the city’s employ and went back to school, changed occupations or retired.

A similar conclusion was reached in USS-POSCO Industries v. Case in California, which voids noncompete agreements. In upholding the reimbursement agreement, the court noted the employee’s participation in the program was voluntary; the money he agreed to pay was for advanced educational costs; and he was not restrained from leaving his employer and working anywhere else.

The court explained: “Repayment of the fronted costs of a voluntarily undertaken educational program, the benefits of which transcend any specific employment and are readily transportable, is not a restraint on employment.”

Courts in Texas reached similar conclusions. In Jeremy Sanders v. Future Com Ltd., the Texas Court of Appeals rejected an employee’s argument that a tuition reimbursement agreement was void as against Texas public policy. In support of its decision, the court noted the repayment provision was meant to protect the company from the loss of the employee’s employment before it had the opportunity to recoup its costs from training him and the company had a legitimate interest in making sure that it was not training employees for its competitors.

Notably, in Sands Appliance Services v. Wilson, the Michigan Supreme Court determined a tuition contract violated Michigan’s Wages and Fringe Benefits Act, which prohibits an employer from demanding a fee, gift, tip, gratuity or other renumeration or consideration as a condition of employment or continued employment. Regulations implementing the act proscribed bonds to ensure employees complete their employment periods. The court determined because the tuition contract was a condition of employment (the employee could not have worked for the employer without it), it violated Michigan law. However, in voiding the tuition contract in this instance, the court noted tuition contracts can be enforceable under Michigan law if they are optional and are not a condition of employment or continued employment.

Safety nets

To ensure the enforceability of agreements that require field employees to reimburse roofing contractors for the expenses incurred by NRCA ProCertification, you should limit the use of these agreements to nonexempt field employees and ensure the agreements are voluntary and not a condition of employment.

A valid, enforceable reimbursement agreement should expressly and explicitly identify the total cost of the certification and repayment terms, including a declining percentage of the expense to be repaid over time based on how long the field employee remains employed. Note it will help any argument challenging the legality of these agreements to include a provision where the employee acknowledges NRCA ProCertification is for the employee’s benefit and is tied only to the employee and not the roofing company.

Lastly, to avoid any argument the reimbursement agreement is an unenforceable noncompete agreement, the reimbursement agreement should provide reimbursement is due when the employee leaves the company regardless of whether the employee leaves to work for a competitor, changes careers or retires.

Philip Siegel is a partner with Atlanta-based law firm Hendrick Phillips Salzman & Siegel P.C.



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