“Claw-back: If no amount is stated, is it enforceable?”

Question: My employer has a “claw-back” agreement that extends 24 months beyond my repatriation from my expatriation in China.

While the items to be repaid are defined in the agreement, there is no dollar figure associated with any of these items. Is this still enforceable?

Shanghai, PRC

Answer: Dear Lee: The simple answer is “Yes,” but the best answer is “Yes, But.” Please remember that difference while I explain:

1. It is not at all unusual to find a financial obligation described in words without a corresponding amount set forth next to it. This is most often the case because, at the time that the agreement is written, the amount of the obligation has not been determined.

As one example, if your employer is entitled to “claw back” from you the value of any stock grant given to you if you should leave the company within 24 months of your repatriation, at the time of the agreement no one might have known the value of any such stock grant to be made.

As another example, if the “claw back” is for commissions paid during a certain calendar quarter, or relocation expense, the amount of such commissions or the amount of the relocation costs might not be known at the time of the signing of the agreement.

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2. In fact, every lawsuit and arbitration has two phases: (i) first, it is determined whether or not a debt or obligation is owed; (ii) then, and only then, is it considered how much that debt or obligation might amount to. Lawyers and Judges call these two distinct stages of litigation (i) the “liability” phase, and (ii) the “damages” phase. And, as might be expected, the “liability” phase of a lawsuit involves “words,” “ideas,” and “concepts,” while the “damages” phase of a lawsuit requires numbers, calculations and simple arithmetic.

Let’s say your car and another car collided. The first question is “Whose driving caused the collision?” The second question is “How much – if anything – does the driver at fault have to pay the faultless driver?”

And in lawsuits or arbitration, it is often more difficult for a jury or an arbitration panel to decide the “damages” (or amount to be paid) than it is to decide the “liability” (or whether or not any obligation exists in the first place.)

3. Remember that, above, I said “The best answer is ‘Yes, but’?” Well, this is why: There are many defenses to “claw back” agreements, in fact, many more than you might imagine. In the law, we have what are technically called “Affirmative Defenses.” This means, quite simply, (i) “YES, I signed that agreement, (ii) BUT there is a good reason (or good reasons) I should not have to pay those monies back.” Hence the title “(i) Affirmative (ii) Defenses.”

Here’s a few of the many, many “affirmative defenses” that may be available to you: (i) YES, I agreed to pay the money back if I resigned, BUT I was really laid off and Human Resources let me tell people it was a resignation. (ii) YES, I did sign the agreement, BUT the reason I resigned was that I was almost raped by my supervisor one evening at the office. (iii) YES, I did agree to repay that money if I left the company, BUT the company required I work in China and my daughter’s asthma doctor told us she could die if we remained in China, so surely I couldn’t do that.”

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. We offer a 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! 

4. By the way, although “claw back” and “repayment” are actually different, they are commonly used interchangeably. Technically speaking, “claw back” refers to “taking back” a payment of money made to you, such as (i) bonus, (ii) commissions, and (iii) leave of absence payments. Technically speaking, “repayment” refers to “reimbursement” of monies paid not to you, but paid to someone else on your behalf, such as (a) relocation costs, (b) tuition reimbursement, and (iii) your legal fees related to, for example, immigration issues.

That said, these days almost everyone uses the two terms interchangeably, and you should not be concerned if you or others use them incorrectly in a technical sense. To my mind, the ultimate test of word use is overall communication not technical accuracy.

5. In my experience, almost every employee has one or two good “Affirmative Defenses” to repayment obligations and, in any case, there is no downside to seeking either forgiveness or negotiated settlement. Claw backs and repayment obligations are good examples of how very “negotiable” employment and employment-related matters are. Employers do not want to spend many thousands of dollars to collect a rather small sum. Nor do employers want to let it get around that employees can – in fact – defeat collection efforts. And, too, some employers understand that you might one day be a prospective customer. This is one area in which I have found employers often negotiate or waiver in their efforts against employees much easier and more quickly than in many other situations.

Lee, thanks for writing in. I hope your employment transition is a smooth one, and that you consider challenging your possible – but not definite – claw back obligation.

My Best to You,
Al Sklover

P.S.: Post-employment, employers might use a Collection Agency to collect sums. To thwart those efforts we offer a Model Letter in response to Collection Agencies. Not guaranteed, but almost always works. Just [click here.] “What to Say, and How to Say It.™” – Delivered by Email – Instantly! 

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© 2014, Alan L. Sklover All Rights Reserved. Commercial Use Prohibited.

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