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Repaying training costs

Posted on June 17, 2022

Can employers demand repayment of training or other costs if you resign and leave?

Employment contract clauses requiring the repayment of training and other expenses by the employee if they leave are common. But are they enforceable?

Here are some examples of possible repayment clauses:

  1. ‘You are employed as a Human Resources Officer.  We will pay for the cost of your CIPD qualification as a loan. If you resign from our employment within 12 months of undertaking a particular training course, you will be required to repay that cost. The repayment amount will however reduce by one twelfth for each month employed following your completion of the course’
  • ‘You are employed as a trainee account. We will loan you the cost of your AAT training and exams. If you leave our employment for any reason within two years of qualifying, you will be required to repay to us the full cost of your AAT training and exams’
  • ‘You will be required to undertake compulsory fire safety training. If you leave our employment for any reason within two years of undertaking that training, you will be required to repay the full cost, which will be deducted from your final salary payment’
  • You are employed as a trainee sales person. The value of the in-house training provided by us to you is £20,000. If you leave our employment for any reason within five years of the commencement of your employment, you will be obliged to repay that full amount to us.

The third is less reasonable, as the fire safety training is compulsory. The fourth seems very unreasonable – there appears no basis for the figure of £20,000 and five years is a long time.

In Ali v Petroleum Company of Trinidad and Tobago [2017]  it was held that a clause stating that a loan (to cover living expenses whilst studying abroad) made to an employee would be waived by the employer if the employee worked for a further five years was enforceable. The company clawed back the loan when Mr Ali took voluntary redundancy.  As long as the company did nothing to prevent Mr Ali from completing his 5 years service, the clause was enforceable.

In Ali, taking the loan was purely voluntary. But what if undertaking the training is an essential (or compulsory) requirement of the job?  In the case of a trainee accountant, study / training is an essential requirement of the role, but on the other hand, the employee is gaining a marketable skill that they can take with them to any future employment. Naturally the employer wants to see some return on that training before the employee leaves. A tapered repayment schedule may be reasonable to ensure that the employer sees a return on their investment in the employee, but the employee is not trapped and prevented from leaving. 

In the case of something like fire safety training, that is hardly something that the employee opts to do voluntarily. It does not give the employee an essential skill which they can take with them to their next role. An employer may find it harder to persuade a court that this was a ‘loan’ for training which could therefore be repayable if they leave. Will the Tribunal consider it a ‘penalty’ clause?

A penalty clause requires a payment of money by the employee in order to punish them if they breach the contract and may therefore be unenforceable. However a penalty clause can never apply where the contract:

  • does not impose  an obligation to perform the act, but
  • just says that if the employee leaves, they will have to pay the employer a specified sum

The penalty rule can therefore arguably  never apply to clauses requiring the repayment of a ‘debt,’ or to clauses which provide for payment of a stipulated sum.  Therefore there will not be an unenforceable penalty clause where a contract:

  • provides employer-funded loan for training for a qualification, and
  • does not oblige the employee to remain for a minimum period after qualifying, but instead
  • obliges the employee to pay the cost of the training if leaving the employer in the event that the employee gives notice and leaves the employment within, say, six months of acquiring the qualification;

In Cleeve Link v Bryla [2014], the Employment Appeals Tribunal considered whether a clause providing for recoupment of relocation and training costs was a penalty. The EAT said that the contract has to be interpreted at the time it was entered into, and on an objective basis. The genuineness and honesty of the employer was not a relevant consideration. The EAT however went on to say that whether the contract is a deterrent or a genuine pre-estimate of loss means looking at the difference between the loss that arises if the employee leaves and the contractual repayment. If that figure is so great that it cannot be explained on any other basis than that it is a penalty to deter the employee from leaving, it will be a penalty.

If the  employer has a legitimate interest which the clause protects, and the sum payable is broadly justifiable, the clause is likely to be enforceable. This applies even if the employer cannot say it suffered a particular loss as a result of the employee leaving.  

These cases therefore put employees on the back-foot when arguing that these clauses are unenforceable. It may be a different story though if the employee is constructively unfairly dismissed. Employers should carefully draft their repayment clauses to clarify payment of training costs is a loan and ensure that repayment provisions are reasonable.

James Carmody

www.reculversolicitors.co.uk

Posted in: law

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