Somewhere, some employer might be thinking: Hey, why don’t I make employees sign a promissory note to pay me back if they leave before six months! That would be a great idea!
It would also be against the law.
Thus, the next installment of the Employment Law Checklist Project #emplawchecklist. The law is set forth at Conn. Gen. Stat. Sec. 31-51r. The key prohibitions are set forth in subsection (b) and (c) as follows:
(b) On or after October 1, 1985, no employer may require, as a condition of employment, any employee or prospective employee to execute an employment promissory note. The execution of an employment promissory note as a condition of employment is against public policy and any such note shall be void. If any such note is part of an employment agreement, the invalidity of such note shall not affect the other provisions of such agreement.
(c) Nothing in this section shall prohibit or render void any agreement between an employer and an employee (1) requiring the employee to repay to the employer any sums advanced to such employee, (2) requiring the employee to pay the employer for any property it has sold or leased to such employee, (3) requiring educational personnel to comply with any terms or conditions of sabbatical leaves granted by their employers, or (4) entered into as part of a program agreed to by the employer and its employees’ collective bargaining representative.
Scope: And here we have yet another definition of what an “employer” is! For this statute, it is “any person engaged in business who has twenty-six or more employees, including the state and any political subdivision thereof.” Why 26? Why not.
What’s Prohibited or Required? Employers can’t require — as a condition of an employment — that an employee sign an “Employment Promissory Note”.
So what’s an “Employment Promissory Note”? It means “any instrument or agreement … which requires an employee to pay the employer, or his agent or assignee, a sum of money if the employee leaves such employment before the passage of a stated period of time.” This would include any requirement that such payments would be reimbursement for employer-provided training.
Are There Any Exceptions? Yes, agreements that merely mandate that an employee repay an advance by the employer is permissible, as well as agreements that require the employee to reimburse the employer for anything sold or leased to the employee (such as a house.). Sabbaticals and agreements under a collective bargaining agreement are also covered by this exception. And note, this is only prohibiting such notes as a condition of employment. Nothing in this statute talks about sign on bonuses and even attorneys that represent employees typically find such provisions unobjectionable.
Private Right of Action or Other Penalty Allowed? No. The statute simply says that such agreements are against public policy and are void. But it’s possible that a court might entertain a “declaratory judgment” action to rule that an agreement is, in fact, void. As a practical matter, though, the biggest takeaway is that such agreements aren’t going to be enforceable.
What May Be Recovered? Nothing.
Any Practical Steps Employers Can Take? Yes. Double check your onboarding documents to make sure you are in compliance. If you use signing bonuses, make sure that they are not really just “promissory notes” in disguise. And anytime you loan an employee money, check with a lawyer to make sure the documentation complies with the law.
Any Other Interesting Information or Background? Not really. What you see with this law is really what you get.
The post Employment Law Checklist Project: No Employment Promissory Notes (With Some Exceptions) appeared first on Connecticut Employment Law Blog.
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