[NOTE: A decision issued last week by the California Court of Appeal has potentially important ramifications for Part 135 air carriers and other employers who require their pilots to reimburse the employer for the cost of initial training leading to type ratings or for recurrent training if the pilot leaves the company soon after receiving the training. Aerlex litigator and employment law specialist Doug Stuart felt the case was important enough that it should be brought the immediate attention of our Aerlex clients. Doug’s report follows.]

Professional pilots receive regular recurrent training, whether they fly as an airline pilot, an emergency medical services pilot, charter or corporate pilot. Some of their training is mandated by the Federal Aviation Administration (“FAA”), some is company-mandated, and some is pilot-requested. Because of the high cost of training, many companies enter into agreements with pilots whereby the company, whether an air carrier performing charter operations under Parts 119 and 135 of the Federal Aviation Regulations (“FAR”) or in-house flight departments operating under FAR Part 91, agrees to pay the cost of recurrent training or training in a new model of aircraft in exchange for the pilot’s agreement to reimburse the employer in the event the pilot leaves the company within a pre-determined amount of time to fly for another company.

Until recently, the law in California has been fairly clear that such an arrangement is lawful. Last week, however, the California Court of Appeal, Fourth Appellate District, sitting in Riverside, decided a case that narrowed the type of reimbursement an employer can demand when an employee leaves the job that paid for his or her training.

It is important to note that the decision was not certified for publication, which means that the case cannot be cited as legal precedent and does not, technically, change the status quo. However, it is still useful to take note of the decision since it may provide some insight into how a trial judge might view a case if legal action is ever instituted to enforce a training reimbursement agreement. We anticipate the Fourth District decision will be appealed to the California Supreme Court. Even if the Supreme Court decides to review this case and provide a definitive answer, that final resolution will not occur for quite some time.

The Los Angeles Police Department (LAPD) has a requirement that all newly hired police officers must attend and graduate from the LAPD’s Police Academy. The recently decided appellate decision involves a regulation adopted by the City of Los Angeles which requires any officer hired by the LAPD to sign an agreement, called “the Acknowledgment,” which requires that officer to reimburse the City for a prorated portion of the cost of training at the LAPD Police Academy if the officer voluntarily leaves the LAPD after serving for less than 60 months following graduation and goes to work for another law enforcement agency within one year after leaving the LAPD. Over a period of years, the City had successfully sued some 40 former LAPD officers for breach of the Acknowledgment and those officers had filed countersuits challenging the City regulation and their obligation to reimburse the City for the costs of their training.

In its ruling, entitled “In Re Acknowledgment Cases,” the Court of Appeal decided, for the first time, that California Labor Code Section 2802 should apply to required employee training. Section 2802 provides, in pertinent part: “An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties….” Section 2802 does not explicitly provide that costs of employee training are to be borne by the employer, nor does it expressly exclude training costs from “necessary expenditures or losses incurred by the employee” in direct consequence of the discharge of the employee’s duties. The Fourth District Court determined, however, that the broad purpose that underlies Labor Code Section 2802 requires an employer to bear all of the costs inherent in conducting its business and to indemnify employees from costs incurred in the discharge of their duties for the employer’s benefit.

The Court of Appeal found that it was consistent with this broad purpose of the statute to require that, where an individual must, as a matter of law, have a license to carry out the duties of his or her employment, the employee must bear the cost of obtaining the license, but that it was also consistent with the statute’s purpose to require that the employer bear the cost of training that is not required to obtain the license but is intended solely to enable the employee to discharge his or her duties. In other words, the basic training to obtain a license is the responsibility of the employee; however, any excess training is for the benefit of the employer and should be at the employer’s expense.

It is not easy to determine exactly how this plays out with respect to pilot training because of the FAA’s various pilot certification and training requirements, including those that are periodic, rather than one-time-only. It seems reasonable to assume that the cost incurred by a pilot in obtaining an airline transport pilot (ATP) certificate will still be considered the responsibility of the pilot. However, a stickier issue involves the training of pilots who are already type-rated in one model of aircraft when the employer needs the pilot to train in and fly another aircraft. Is this for the benefit of the employer and, therefore, the employer’s obligation to pay for the training, thus rendering a reimbursement agreement invalid? Clearly, the safer bet when hiring new pilots would be to insist upon those who are already type-rated in the particular type of aircraft to be flown. However, what if the employer has an existing pilot that it wants to fly in another aircraft? If the reasoning from the LAPD case becomes law, it is possible that training reimbursement agreements in this scenario would be invalid as well, placing the full burden on the employer.

Until another case is decided and certified for publication by either the Court of Appeal or the California Supreme Court, there will be uncertainty as to whether pilot training reimbursement agreements will continue to be enforceable. Barring a more definitive decision from the courts, it is probably prudent for employers to continue using these contracts whenever appropriate, but to be sure their agreements are well thought through and carefully drafted, keeping in mind the possible changes to existing law.

To contact Douglas Stuart about labor or litigation issues, please call 310-392-5200 or write to dstuart@aerlex.com.