“Can an employer just ‘hold back’ money it claims it is owed by an employee under a ‘claw back’ provision?”
Published on May 23rd, 2010 by Alan L Sklover
Question: Hi, Alan. My husband signed an offer letter in November, 2009 from his present employer. He started in January of this year.
The offer letter contained a paragraph that said that he would have to sign a “clawback” agreement which would require that, if my husband left the job, he would have to pay back to the employer the fees it paid to a recruitment agency. The offer letter did not provide any specifics, such as how long he would have to stay on the job to avoid having to repay those fees, or how much those fees were.
In January, when my husband started work, he was given the “clawback” agreement to sign. It said that if he left for any reason for two years, he would have to pay back 100% of the agency fees, which are a lot of money. My husband was very reluctant to sign the “clawback” agreement, and simply said “No, I won’t sign that.”
Now, five months later, it turns out that the employer was not truthful about the job, and their management style is clearly not compatible with my husband’s way of doing business. He decided to resign, and gave them one month’s notice.
Now the employer is insisting that my husband pay back the agency fees, and that if he does not do so, they will deduct that amount from other monies they owe him.
Does the offer letter bind my husband to repay the monies, even though it did not say how much, when, or other specifics, and he never signed the “clawback” agreement?
Answer: Leverne, your husband’s dilemma is an interesting one. Unfortunately, the “answer” is not simple. However, let’s do our best; I think he’s in pretty good shape. (You know, of course, that I am not licensed to practice law in South Africa.)
1. Material Terms Must Be Known: First, as a general rule, a person cannot be bound to honor the terms of a contract if the “material terms” of that contract were not made available to him or her when he or she signed it.
Imagine that you sign a contract to buy a house; can the homeowner later tell you the price is $1 billion? I don’t think so; that would not be enforceable.
On the other hand, not every detail of an agreement can be inserted into a contract. Thus, if you agreed to buy a house, and one brick in the foundation was cracked, is that enough to cancel the deal? No. That detail would not be considered “material” enough to break the deal.
2. Breach of Contract by One Party Frees the Other: Second, as a general rule, if one person dishonors his or her obligations under a contract, the other person is not required to honor his or hers. If the company never came through with the material aspects of the job he was promised and expected, then that, too, would release him from having to pay the “clawback.”
Imagine if the buyer of a house did not pay the purchase price; surely, the seller would not have to hand over the deed.
3. A Party Does Not Have to Perform a Contract He Was Tricked Into: I don’t know all of the facts, events and circumstances of the recruitment, the job offer, or the job, but if they seem to make out a case that your husband was “tricked” into taking the job, then what we lawyers call “fraudulent inducement,” may release your husband from having to fulfill any obligations he had agreed to, presuming, of course, he knew the material terms of those obligations.
Imagine if you agreed to buy a house, and it turned out the seller did not really own it, surely you would not have to pay the purchase price.
4. “Self-Help” is Frowned Upon; Local Labor Dept. May Help: Finally, the law generally frowns upon parties taking it upon themselves to “take” money they claim is due them without first going to court to prove that. If people did that, we would have a lawless society (and, besides, what would all the judges and juries then do with their free time – just kidding). I believe you would have a very good basis to get local Labor authorities to assist your husband in collecting his monies, taken without his permission, as the employer engaged in a “Self-Help” measure.
I suggest that your husband write a letter to his employer’s Board of Directors, or owners, or President, and express in his own words what we reviewed above. The letter should be sent in a “verifiable” manner, such as Federal Express and/or email, to prove its delivery. That letter should say the company (1) never told him the amount he would have to pay, (2) failed to honor its own commitments, (3) may have “tricked” him, and (4) is violating the law by taking money without a legal right to do so. The letter should be respectful. I think that might “do the trick.”
If it doesn’t, my suggestion is you contact your local Labor Department and request their assistance in collecting wages and benefits earned, but taken away from your husband illegally.
Last, you might consider meeting with a local attorney to review these thoughts. I’m hoping that this does not become necessary, because your husband is on the side of “right,” and you now have some good leverage to stand up. The letter to the Board would serve as proof that he acted in good faith, and they did not, which is always helpful if and when you go to court.
I’d love to hear from you on how things go. Hope this has been helpful. If it has, I’d appreciate it if you told other South African citizens about our blog.
My best, Al Sklover
If you agreed to repay your former employer (a) tuition reimbursement, (b) relocation expenses, (c) a sign-on bonus, or even (d) a short-term loan, you may be able to have that obligation waived and forgiven. To obtain a copy of our Model Memo entitled “Model Letter for Repayment Obligation Forgiveness – with 18 Great Reasons,” just [click here.] “What to Say, and How to Say It.™” – Delivered by Email – Instantly!
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