The Importance of Understanding Terms of Employment

Consider this scenario: Your construction company offers an incentive when hiring a new employee, but that employee is terminated before the mandated length of service is complete. Should the former employee be required to reimburse the company for the incentive they received? That question was recently posed to a California appeals court. Here’s how the court ruled—and what it should teach employers and employees about reading contracts thoroughly. 

Details of the case

In Walgreen Co. v. Anest, No. C097574 (Cal. Ct. App. Jul. 24, 2023), a pharmacist was hired in May 2016 by Walgreens and received a $35,000 incentive. According to her employment contract, receiving the incentive required her to remain with the company continuously for three years. However, the pharmacist was terminated after just 21 months.

Walgreens then sent her an invoice for repayment of the incentive, which she did not repay, leading Walgreens to file a suit for breach of contract. The pharmacist chose to represent herself and argued that Walgreens requiring her to reimburse the incentive payment would violate a section of the California Labor Code stating that it is unlawful for an employer to collect wages paid to the employee prior to termination.

The pharmacist also suggested Walgreens should not be allowed to recoup the incentive payment because the company terminated her employment. However, the employment agreement she signed stated her obligation to repay the entire incentive amount if she left the company for “any reason” before fulfilling three years of continuous employment.

Although the cause for her termination is never explained in this case, her leaving due to termination still fulfills the “any reason” stipulation. The trial court ruled in favor of Walgreens, agreeing that the pharmacist was responsible for repaying the incentive.

What does it mean for your construction business?

Many companies have adopted incentive programs to help in the recruitment process. These might include referral payments to current employees who recommend new hires, help with relocation expenses or additional paid time off.

It is interesting to consider the employee’s arguments in this particular case, but overall it provides a cautionary tale about always understanding what you are signing and, from the company’s side, what you are promising employees both during and after their employment with you.

The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.

Trent Cotney is a partner and construction practice group leader at the law firm of Adams and Reese LLP and NRCA General Counsel. You can reach him at [email protected] or 866.303.5868.