Companies commonly offer salary advances or financially invest in an employee’s education, training, or certification. But a recent decision by the Michigan Court of Appeals is a good reminder of how missteps in accurately documenting such advances or investments can be costly. In this case, an employer was out over $200,000 after investing in education and salary advances for its former employee because of the wording of its agreement.
The case in question, Riversbend Rehabilitation v Enos, involved Riversbend Rehabilitation, which provided physical therapy services. Riversbend, through its owner, Michael Wilson, entered into a written agreement with Enos whereby Riversbend would pay the full amount of Enos’s tuition and other educational expenses associated with obtaining a doctoral degree in physical therapy.
The agreement also provided that Riversbend would provide Enos with $40,000 per year as a “salary advance” while he was in school. In exchange, Enos after graduation would work for Riversbend for a salary less than what therapists are paid and the amount of that reduction would be credited against the salary advances until the full amount of the advances had been repaid.
However, the relationship between Wilson and Enos later deteriorated and Riversbend, in an email from Wilson, rescinded its employment offer to Enos. Wilson also emailed Enos a proposed amended agreement and promissory note reflecting that Enos would not work for Riversbend. However, Enos did not execute them. After that, Riversbend did not pay Enos’ tuition for the Fall 2012 and Spring 2013 terms. It also ceased paying Enos a salary in December 2012. Enos in turn refused to repay the salary that Riversbend advanced to him, and Riversbend eventually filed a lawsuit.
The trial court sided for Enos. Specifically, the court concluded that “the parties did not contemplate what would happen if Riversbend refused to employ Enos or refused to make the required payments.” The court, however, concluded that under the plain terms of Riversbend’s contract, Enos had no obligation to repay the advanced salary.
… Enos’ obligation to repay the advanced salary … did not include Riversbend’s refusal to employ Enos or make the contemplated payments … [Enos was obligated] to repay Riversbend by accepting employment with Riversbend, which repayment would be made through acceptance of a reduced salary for a period of time, or, in the event that Enos breached the agreement or elected not to work for Riversbend, he had an obligation to repay Riversbend with payments over time. … Enos did not refuse employment with Riversbend or otherwise engage in acts that would trigger his obligation to repay the advanced salary.
Riversbend also lost on appeal after the Michigan Court of Appeals affirmed the trial court’s decision.
One of the judges on the panel that affirmed the trial court’s decision filed a separate concurring opinion. That opinion expressed disappointment with the outcome, but nonetheless agreed with the result:
… I find myself compelled to concur in the result in this case, but I have serious doubts about whether we have served justice … In my view, the better outcome in this case would be to remand to the trial court to reform the contract so as to provide reasonable terms of repayment of the advance salary, but I do not believe we have the authority to do so.
Businesses rightfully expect a return on their investment, including investing in an employee’s education, training, certification, or when making an advance. But, as this case illustrates, it is important to have in place the proper agreements to protect such investments. And employers can’t (and honestly shouldn’t) expect judges to fix a situation that results in an unfair result like that experienced by Riversbend. Instead, employers need to have a well-written employment agreement or related contracts in place.
For more information about this article or documenting investments in employee training, education, certifications, as well as salary advances, contact Michigan attorney Jason Shinn. He routinely represents both employers and executive employees and sales representatives in documenting and, if necessary litigating contract claims arising out of such issues.