It is increasingly common for employers to offer to pay training costs on behalf of employees. But what happens when these individuals leave? Is it possible to recoup some or all of these costs?
Covering training costs
It is simply a reality that in the current climate, rightly or wrongly, employees are expected to have a greater level of educational qualifications than in previous years in order to have access to certain roles. For example, it is not uncommon for many entry-level jobs to require an undergraduate degree.
In this environment, it is perhaps unsurprising that employers are increasingly assisting employees financially with academic qualifications which complement their day-to-day roles, give a broader context for the individual’s role, or allow that individual to specialise in a certain part of their chosen discipline. Additionally, qualifications in some professions are a requirement, for example many law firms pay for their trainee solicitors to undertake the Legal Practice Course, which is the main prerequisite to qualification as a solicitor.
However, it is also true that employees do not stay in the same role as long as they once did. Research has shown that the best way to achieve a higher salary is to move around. As such, what if, having paid out significant sums of money for employee training, that employee hands in their notice?
Repayment of training costs
It is tempting for employers to demand repayment of training fees where an employee leaves the organisation. However, whether such threats hold water depends on the contractual position.
If there is not a contractual right that allows for the employer to require repayment, the money cannot be recovered. The only option available would be to offset the amount against the money paid to the employee by way of salary during the notice period. This has significant risks however either in terms of a claim for unlawful deduction of wages or for non-payment of the national minimum wage – more on this below. Additionally, in practice the employee’s salary is unlikely to cover the full amount of the fees.
Even if the employer has been prudent and contemplated this situation arising, the mere existence of a clause allowing the employer to demand the fees back from the employee does not automatically mean that the employer is able to rely on it. These clauses have been found in several instances to constitute a penalty clause, which is a clause that disproportionately punishes a party to a contract for a breach of that same contract. The consequence of a clause being found to be a penalty is that the clause cannot be enforced and, again, the money cannot be recovered.
The Apprenticeship Levy
The UK Government, recognising that people often find it difficult to gain the skills needed for jobs in a modern economy given the rising costs of studying, have placed emphasis on increasing the availability of apprenticeships.
As such, the Apprenticeship Levy is a tax on employers with a pay bill of over £3 million, which came into effect in April 2017. Those employers who pay the levy are able to create an account which allows access to funds to spend on apprentices and training. So what is the position if an apprentice leaves, having benefited from training paid for by the Apprenticeship Levy?
Unfortunately, there can be no recovery of the Levy from the apprentice. Apprentices cannot be asked to contribute towards the levy, even if they leave the training early or their employment ends.
National minimum wage (NMW) issues
The NMW rate for employees and workers depends on the age of the individual. For those aged 25 and over, the current rate is £8.21. There is also a specific rate for apprentices, which is £3.90 per hour. A failure to pay the NMW can result in a claim for unlawful deduction from wages, as well as investigation and enforcement by HMRC.
There is also a significant risk of negative publicity arising from a failure to pay NMW, particularly as the Government now posts a list of employers online who do not pay the NMW as a way of naming and shaming them.
There is a risk that, should a deduction be made for a repayment of a training cost, the employee will have been paid below the NMW. There are, however, some deductions which don’t have to be taken into account for NMW purposes including any deduction in respect of the conduct of the worker or any other event….
Recent case law has clarified that, where an employee voluntarily resigns or commits an act of misconduct resulting in the deduction for repayment of training costs, then such deduction does not have to be taken into account for NMW purposes.
Where the repayment arises because of the employer terminating the contract of employment, such as in a redundancy situation, the deduction would be taken into account and therefore could not be made in circumstances where this would result in the worker receiving less than the NMW.
As such, employers must take care not to draft repayment clauses that are excessive or to quote the case law, “extravagant and unconscionable”. There is a fine balance to be drawn to allow for reasonable recouping of fees, if the employee leaves shortly after the company has invested a large amount of money in their education.
As some general guidance there should be;
- A general obligation on the employee to repay fees at a reasonable level;
- A sliding scale of repayments, whereby the amount payable by the employee reduces depending on how long has passed since completion of the relevant course;
- Circumstances i.e. after a certain length of time in which no repayment is required; and
- A specific contractual right for the employer to deduct from wages for repayment of fees.
Care should be taken to ensure that any repayment agreement between employer and employee is documented and signed before the training commences and clearly states as far as possible exactly which course is being paid for and for which the employee is liable in the event of them leaving.
Often one course may lead to another - for example an NVQ progresses to a foundation course to an undergraduate degree - in which case the employer should ensure that the employee signs a new repayment agreement for each new course that they start.
An agreement which follows these guidelines should ensure that employers are able to recoup at least some of the financial loss.