What is the law regarding paying an ex-employer back for upfront money paid to them?

UPDATED: Sep 30, 2022

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What is the law regarding paying an ex-employer back for upfront money paid to them?

I recently resigned from my job as a loan originator with a mortgage company. When I was hired I signed a compensation schedule that paid me 2 months guaranteed for coming to this company. In this contract it stated that if I quit within 12 months, I would have to pay back the amount. About 6months later, I did resign because they did not have the loan programs that they promised they would have, the underwriting process was false (they would initially approve the loans and then decline them) and a few other issues. Now they are attempting to recover the 2 months guarantee. I used all my savings, to live while employed there. What is my legal rights about this issue? And if I have to pay it back, can I make payment arrangements?

Asked on January 28, 2017 under Employment Labor Law, California


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 6 years ago | Contributor

A contract is legally enforceable: you signed an agreement that you would repay them if you left before 12 months was over, and then you did leave before 12 months. Therefore, you have to repay the money. If you don't repay, they can sue you for it; you could try to defend against the lawsuit on the grounds they either committed fraud (lied to you about the programs they'd have) to get you to sign up to work for them, or breached their contract by not supporting you in originating loans (e.g. declining loans when they should not have). You might win--i.e. escape liabilty on that basis--but the odds, quite frankly, are against you: you'd have to prove the fraud (lies made knowingly to you before you came to work for them) or that they declined loans for no good/valid reason, both of which may be difficult to do. Meanwhile, it is easy for them to prove that you should have to repay: the contract terms speak for themselves.
That you used the money to live is irrelevant--that has nothing to do with your legal obligations.
You can try to negotiate a payment plan with them, but that is voluntary on their part: they don't have to give you a repayment plan, and can insist on payment in full.

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