“We have recently recruited an employee for a permanent vacancy. We used a recruitment agency to help source the successful candidate, thus incurring substantial fees. After being with the company nine months, the employee has resigned. We now find ourselves burdened with the recruitment agency’s fees. Is it possible to ask the employee to cover some/all of the cost incurred during the recruitment process? How should I handle this?”

Provision for the recoupment of costs is regularly incorporated into contracts of employment, commonly in relation to fees for training or additional qualifications, enhanced periods of leave (e.g. maternity leave) and any other ‘perks’ the employee may benefit from during the course of their employment.

In some instances, there may be a clause in the employee’s contract allowing recovery of any recruitment agency fees (incurred during the hiring process) in the event the employee resigns within a specified timeframe. It is possible that such clauses may become more common, as employers face increased operational costs and overheads as a result of inflation.

As a first step, I suggest you should look to the contract of employment for guidance. Is there a clause in the contract that expressly states you may pursue the employee for repayment of recruitment fees in certain circumstances? Has the employee signed their contract?

In the case of Kaur v Hatten Wyatt Solicitors (2019) the Employment Tribunal in England ruled that an employer was entitled to rely on its contractual right to recoup recruitment agency costs from an employee who resigned within 12 months of her start date. In that case the Claimant was employed as a solicitor in a law firm and her contract of employment included a clause which expressly stated, that if she were to tender her resignation within a year of her start date, she would be liable for the recruitment fees incurred.

Initially, the Claimant challenged the clause and was advised by the firm that it was rarely enforced, albeit the Tribunal held this was not sufficient confirmation the firm would not enforce it. The Claimant was advised the day before payday that she would suffer a deduction from her wages (this was deemed unsatisfactory by the Tribunal) and the recruitment fees were deducted from the Claimant’s final pay cheque which she contested as an unlawful deduction of wages.

The Tribunal was tasked with determining whether the relevant clause constituted a penalty clause, (which normally compels one party to make payment to the other in the event of a breach of contract). The test for identifying whether a penalty clause is unenforceable is whether the clause is deemed to be extravagant, exorbitant or unconscionable.

Whilst the Tribunal was of the opinion that the clause was extravagant, exorbitant or unconscionable in nature, on the basis that it was an attempt to pass costs, ordinarily paid by the employer, to the employee, it held that the clause was not a penalty clause on the basis that there was no breach of contract. The Claimant was permitted to tender her resignation and leave her job: she had authorised the deduction of wages.

The above case highlights that while such clauses are rare, if they are incorporated into a contract, they may be enforceable. Furthermore, it is important to note that while the Tribunal held the employer was entitled to rely on the terms of the contract, it was sympathetic to the Claimant’s position.

Overall, when addressing this issue, I suggest transparency and communication are fundamental. Should the Company have such a clause in their contract of employment, I suggest you take all reasonable precautions to mitigate any associated risks. You should consider the following:

• Has the employee been made aware of the clause within their contract of employment?
• Is the contract signed?
• Does the employee fully understand the effect of the clause?
• Has the employee been given sufficient notice of the deductions?
• Have you considered alternatives to a “one of” deduction?

In the event you do not have the appropriate clause in your contract, signed by this employee to avoid a claim for unlawful deduction of wages, recoupment of fees will be difficult.

You may wish to review the Company’s position going forward and make appropriate provision. I suggest that you proceed with caution however, and carefully consider the pros and cons:

• In the current candidate driven recruitment market, staff retention is proving to be a challenge for employers. Inclusion of a clause could serve as a mechanism to ensure potential candidates are committed to the role they have applied for.
• There is a risk however that candidates may be deterred by the clause and turn down any prospective offers of employment.
• A clause could be viewed as an unfair restriction imposed on the employee, preventing them from changing their employment within a specified timeframe.
• The risk remains, as seen in the case of Kaur v Hatten Wyatt Solicitors, that the employee could contend any deductions constitute an unlawful deduction of wages.

You should consider carefully specific circumstances and undertake a balancing exercise to ascertain whether the benefits of including a recoupment clause outweigh the risks.