The HR Team is carrying out a contract review. Having been informed by Management that up-skilling employees is going to be one of the main areas of focus over the next couple of years, the HR team requires advice on recouping training costs. What are the considerations when drafting this type of clause?

Carson McDowell writes:

The HR Team is right to think about this issue when drafting the contracts of employment as any effort to recover monies for training when there is no contractual right to do so will fail. In fact, even if there is a clause in the contract of employment stating that training costs can be recouped, the clause may still be void for being a penalty clause or a restraint of trade.

Each case will therefore depend on its own facts – so what can be done to give the Company the best chance to recoup the costs should an employee leave the business?

• Limit the time frame within which the Company will seek to recoup the training costs e.g. up to 12 months’ after the date that the training was given;
• Have a sliding scale as to the amount of monies that will be recouped – e.g. 100% if the employee leaves within 6 months, 75% after 9 months etc.

A word of warning – where a repayment clause is used, it is important that the repayment period does not amount to indirect discrimination e.g. on the grounds of age. Given that an older employee is less likely to remain in employment for as long as a younger employee, if a sliding scale is to be used for repayments, the period for repayment should not be for too long.

Finally, the amount that the Company seeks to deduct should reflect the cost of the training to the Company. In MBI UK Ltd v Quigley UKEAT/0061/08, the EAT held that even where there was a repayment clause, the right to make deductions e.g. from an employee’s last month’s salary to take account of training, would arise only if the employer provided training which cost at least the amount deducted. It found that the “conventional induction” undergone by the employee, lasting 1.5 days, did not amount to training which should be “caught” under the repayment clause.

It is important to note that each case will turn on its own facts. The circumstances of the termination of employment, together with the amounts repayable by the employee, will be relevant to determining whether any repayment of training costs clause is in fact a “penalty clause” and therefore unenforceable.