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Patrick, Esq.
Patrick, Esq., Lawyer
Category: California Employment Law
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Experience:  Significant experience in all areas of employment law.
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Ive been working in current employer 18 months. I voluntarily

Customer Question

I've been working in current employer 18 months. I voluntarily quit (not layoff) current employer. The current employer gave me a sign on bonus of $10,000 and a relocation bonus of $12,500 when I start working 17 months ago. My offer letter stated that I needed to payback the FULL amount for both if I leave before the 24 month period. Although I understand that the signed offer letter is a contract, is it still legal to ask full amount payback in California? Isn't it illegal to ask full amount instead of pro-rated amount? In addition, after tax amount is much less than what they're asking for. Do I really have to pay back the full amount of $22,500? Are they supposed to reflect my pay back in W2 form so that my income this year is less the pay back amount?
Submitted: 9 months ago.
Category: California Employment Law
Expert:  Patrick, Esq. replied 9 months ago.

Hello and thank you for entrusting me to answer your question. I am very sorry to hear about your employer's insistence that your repay these bonus amounts in their entirety.

Although California law zealously guards an employee's right to earned wages, courts have expressly held that an agreement to repay an incentive bonus or moving expenses is permissible and that such bonus does not constitute a wage "earned" until the time frame specified for compulsory repayment has lapsed.

Thus, an agreement such as yours in which repayment in full is mandated if you quit within 24 months does not constitute an unlawful forfeiture of wages and is otherwise legal. There is no requirement that repayment be pro rated--whatever the contract dictates is what controls.

So that you are not paying tax on the bonus money you are paying back, you will want to file an amended tax return with both the State of CA and the IRS. For information on filing an amended 1040, see here: http://www.irs.gov/uac/Nine-Facts-on-filing-an-Amended-Return See here for the CA equivalent form: https://www.ftb.ca.gov/forms/2012/12_540x.pdf

Please do not hesitate to let me know if you have any questions or concerns regarding the above and I will be more than happy to assist you further.

If you do not require any further assistance, please be so kind as to provide a positive rating of my service so that I may receive credit for assisting you. Very best wishes to you and thank you so much for coming to Just Answer.

Expert:  Patrick, Esq. replied 9 months ago.

Sean,

See here for more information about amending your returns: http://www.calcpa.org/content/consumers/ask/tax/mm0418.aspx

Again, please feel free to let me know if you have any further concerns. If I have answered your question, I would be very grateful for a positive rating of my service so that I may receive credit for assisting you.

Kindest regards.

Customer: replied 9 months ago.

Hi,


 


I appreciate for your answer. I have further questions on this issue.


1. what would happen if I refuse to pay back and just leave the current employer. While I understand that they can sue me in civil court, what's the worst case scenario if I lose in court before arbitration? In that case, does it affect my credit history? If I pay back after their sue, does it still affect my credit?


 


2. If I pay back as the contract dictates, is there due date related rule? The job offer (contract) didn't specify how soon I have to pay back.


 


3. Regarding my tax returns, is filing amended tax return only way to recover overpaid tax? Or deduction in the following year tax return (http://www.irs.gov/publications/p17/ch12.html#en_US_2012_publink1000172015) is also possible way?


 


Thank you for your answer in advance.

Expert:  Patrick, Esq. replied 9 months ago.
Sean,

Thank you very much for your followup questions. It is my pleasure to address them as follows:


1. what would happen if I refuse to pay back and just leave the current employer. While I understand that they can sue me in civil court, what's the worst case scenario if I lose in court before arbitration? In that case, does it affect my credit history? If I pay back after their sue, does it still affect my credit?

As you correctly state, they would need to sue you. You could let the complaint default and then they would be tasked with collecting their judgment. If you still didn't pay, your wages could be garnished, liquid assets seized, and your home (if you own one) levied. You'd also be subject to "debtors exams," where you are subpoenaed into court every few weeks and questioned about your existing assets in open court. Not pleasant. If you did pay, you'd be liable for the judgment plus 10% interest accruing after its entry.

Your employer could try to allege that your failure to pay "damaged" them in some manner, though I don't see how that argument could plausibly be made. If it could be made, however, you would be liable for any damage that was reasonably foreseeable as a result of your breach.

Look over your employment contract very carefully. Very often, such agreements contain a clause entitling the prevailing party to attorney fees. Assuming that to be the case, you'd be liable for attorney fees which could mean thousands of extra dollars in liability.

As far as your credit report is concerned, a court judgment is a public record and so there is no guarantee that the judgment won't appear on your report or even that it won't ding your credit (the credit agencies don't give us precise. If you don't pay the judgment, it will undoubtably be both reported and result in a lowering of your score.

Moreover, since the judgment is public record, it would likely be discovered during any routine background check conducted by a future employer. If they dig deeper and see that you were sued for breaching an employment contract, that will likely give them some pause as to whether they want to hire you.


2. If I pay back as the contract dictates, is there due date related rule? The job offer (contract) didn't specify how soon I have to pay back.

If the contract doesn't state a date, then the amount must be paid back within a "reasonable" amount of time. What is "reasonable" depends on the circumstances but most likely would not be more than 3-4 weeks.

3. Regarding my tax returns, is filing amended tax return only way to recover overpaid tax? Or deduction in the following year tax return (http://www.irs.gov/publications/p17/ch12.html#en_US_2012_publink1000172015) is also possible way?

I am not a tax attorney and so cannot provide detailed information in this respect. I am sure that whoever does your taxes can provide you with a mch better answer to this question, though from my rudimentary understanding of tax law in this context, a deduction the following year would likely be permissible.

Again, I hope this helps and best of luck to you.
Customer: replied 9 months ago.

I appreciate for your answer.


 


I pasted an exact copy of contract concerning sign-on bonus and relocation assistance below.


 


It seems it states repay of "relocation assistance" not sign-on bonus. Would you please check this details of contract, please? I strongly believe that I need to pay back only relocation assistance.


 


Other than sign-on bonus and relocation, company also want me to repay green card process legal fees. My green card process was not finished. The contract didn't specify repay of immigration support cost repay. Is it legal to ask repayment?


 


----------------------------


You will receive a sign-on bonus in the amount of 10000 USD, subject to applicable withholding taxes, which will be paid after thirty (30) days of your date of hire The sign-on bonus, though paid in advance, is earned over the first twenty-four (24) months of your employment, and is paid in consideration of your provision of services over the twenty-four month period. If, within twenty-four (24) months of your date of hire, you voluntarily terminate your employment with the Company or the Company terminate your employment for breach of Company policy or for performance related reasons. You will be required to repay the Company the full amount of the relocation assistance.


 


The Company will also provide you with relocation assistance of 12500 USD, subject to applicable withholding taxes. Relocation assistance; though paid in advance, is earned over the first twenty-four (24) months of your employment, and is paid in consideration of your provision of services over the twenty-four month period" ff, within twenty-four 24 months of your date of hire, you voluntarily terminate your, employment with the Company or the Company terminates your employment for breach of Company policy or for performance related reasons, you will be required to repay the Company the full amount of the relocation assistance.


------------------


 


Thank you very much!


 

Expert:  Patrick, Esq. replied 9 months ago.
It would seem almost as though whoever drafted your agreement made a typo when they said "relocation assistance" at the end of the last sentence in the first paragraph you quoted. The entire paragraph is talking about a signon bonus but then they say you will be liable for relocation assistance.

If that's truly what the contract says, then you are correct that it does not mandate repayment of the signon bonus. An employer cannot enforce someone the contract does not say, and if they drafted the agreement, the burden to check for mistakes definitely falls on their shoulders.

As for green card legal fees, that gets into an area of immigraiton law with which I am not familiar. However, absent a contractual agreement to repay, I don't see how repayment could be demanded after-the-fact.

Again, I do hope that this addresses your concerns. Please do not forget to rate my service in answering your questions so that I may receive credit for assisting you.

Very best wishes moving forward.
Patrick, Esq., Lawyer
Satisfied Customers: 6263
Experience: Significant experience in all areas of employment law.
Patrick, Esq. and 3 other California Employment Law Specialists are ready to help you
Expert:  Patrick, Esq. replied 9 months ago.
Can I assist you further?
Customer: replied 9 months ago.

Thanks. It's lots of help.


 

Expert:  Patrick, Esq. replied 9 months ago.
My pleasure. All the best to you moving forward, an if you require any additional clarification please let me know.

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