Are you required to pay your employer a penalty if you resign?
Question: I am a registered nurse. My employer has created a contract stating I must repay $50,000 if I leave before 5 years and each year of employment the amount to repay will decrease by 10k. (Year 1 I owe 50k, yr 2 i owe 40k…yr 5 I owe 10k). their reasoning was that they have lost 2 nurses before me both staying only 2 years and they will have to spend their time (at least 1 yr) to train me hands on and this time is valuable as are the training seminars that they will send me to. Is this enforceable if I leave before 5 yrs?
Answer: If you are a unionized employee, your first step should be to go to your union representative to discuss why your employer would ever think to attempt to include such a severe stipulation in your agreement.
If you are not unionized, let your employer know that the clause is unenforceable as it would act in restraint of trade. Restraints of trade are viewed with justifiable suspicion by the law. The clause in practice would in effect bind the employee to the employer because the shorter the employee worked, the less likely they would be to leave the employment of their own free will knowing that they would have to pay back a significant amount of money to the employer.
In addition, in the eyes of the law, the clause is viewed as a “penalty” and would be considered unconscionable, which simply means that the bargain is too unfairly one side and is therefore unreasonably excessive. Courts have consistently invalidated employment contract provisions that are unconscionable. In this scenario the fact that the employee is required to pay their employer if they leave before five years certainly is unreasonably excessive and unenforceable given that there is no rational connection between the five year repayment requirement and the cost or time to train the new employee.