What are repayment of training costs clauses?
Repayment of training costs clauses are usually included in contracts of employment. Should an employee/worker leave within a defined period of time, they must repay the training costs, or a proportion of it, that the employer has invested.
How are repayment of training costs clauses used?
Repayment of training costs clauses can be inserted into Employment contracts, Internship contracts or apprenticeship agreements. It is essential for these types of clauses to be properly drafted to ensure they are enforceable. Alternatively, employers can create a separate agreement with the employee in question or make a repayment of training costs policy part of their employee's contracts.
Requirements for validity
It is important to make sure these types of clauses are carefully drafted to avoid the clause being unenforceable.
These types of clauses cannot be penalty clauses. It is essential that the clause goes no further than returning the actual expenditure of the company and is not there simply to penalise employees for leaving.
A clause can be construed as a penalty and therefore unenforceable if:
it creates a secondary obligation that imposes a detriment on a party in the event of their breach of contract (ie a penalty for leaving the employer), and
this obligation is out of proportion to any legitimate interest of the innocent party (the employee who wants to leave employment) in the enforcement of the primary obligation under the employment contract
It is also important that the clause is proportionate. For instance, a staggered clause could state that if the employee/worker leaves within 6 months they must pay 100% of the costs, whereas after 12 months this will decrease to 75% and then 50% after 18 months. This approach ensures that any repayment is in direct proportion to the actual costs incurred, given that the employer will have benefitted from the employee’s new qualification for a certain time period.
Therefore, it is always good to avoid extravagant and unconscionable demands in these types of clauses.
Restraint of trade
The clause should not have the effect of discouraging the employee to leave, and therefore be an indirect restraint of trade.
Potentially any clause which has the effect of retaining the employee in the employer's organisation for a fixed period of time after training or seeking repayment if the employee leaves before a certain date is capable of being in restraint of trade. That is why it should be carefully drafted to ensure it does not get challenged under this category.
If an employer decides to include a repayment of training costs clause, it should also not operate the clause in a discriminatory way. For example, an employer cannot treat an employee in a less favourable way because of pregnancy or maternity by suspending the time left under a repayment of training clause for the period when the employee is on maternity leave and not counting that as active service.
if you would like to insert a repayment of training costs clause into your contracts of employment
if you want to enter into a separate repayment of training costs agreement
for tax issues in relation to training costs