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Can you claim back training costs from employees?

Training costs

Providing training and development opportunities to your employees is a great way to invest in your staff and in your business.   The cost of such training is usually borne by the employer on the basis that, over time, the business will benefit from the new skills or knowledge that the employee has gained.   Sometimes, however, an employer will pay for an expensive training course only for the employee to leave part way through or after completing the training course and before the employer has had the opportunity to derive any benefit from the investment in the employee.  The question then is whether, having gone to such an expense, the employer can recoup the training costs from the employee.  

When can we claim back training costs from our employees?

In order to claim back training costs, you need to have the employee’s prior written consent.   This can be in the form of a clause in their contract of employment or in a separate training costs agreement that is entered into before the training commences.  

The clause/agreement will typically say that the employee agrees to repay the costs associated with any training course that you have paid for if they leave their employment within a particular period of time after completing the course.   

The rate of repayment will usually be on a sliding scale depending on how soon they leave after completing the course.  For example, you may require 100% of the course costs to be repaid if an employee leaves during the course or within 6 months of completing it.   After 12 months of completing the course, you may require 50% of the fees be repaid, and so on.   

The purpose of having a sliding scale of repayment is to reflect the fact that the longer the employee stays with you, the more benefit you will receive from the skills/knowledge they have gained from the course.  It is also important because it will help you to defend any accusation from an employee that the clause is unreasonable and unenforceable.  

It is important to emphasise the need to obtain the employee’s written agreement before the training commences since an employee is unlikely to retrospectively agree to reimburse your costs.   

Can we enforce an agreement to recoup training costs?

Sometimes an employee will argue that the training costs repayment clause is a penalty clause and therefore unenforceable.   A penalty clause is a clause in a contract which imposes a detriment on an employee which is out of all proportion to the actual loss that may be suffered by the employer.    

There have been a few tribunal cases that have considered whether a clause in an employment contract requiring an employee to refund training costs is a penalty clause.  Although each case will depend on its facts and the circumstances in which the employment ended, if the repayment clause provides for recoupment of costs on a sliding scale, as mentioned above, then it is unlikely that the clause will be considered a penalty.   

Can training costs be recovered if the employee is dismissed?

Normally the training costs clause/agreement will provide that the employee will not have to repay the costs if their employment is terminated by their employer for any reason, unless the reason for termination is one for which the employer was entitled to dismiss summarily e.g for gross misconduct.  

Therefore, if an employee’s employment is terminated on the grounds of redundancy, ill health, or poor performance (for example) they would not be obliged to make any repayment.  

What if the employee claims they have been constructively dismissed?

If an employee resigns in response to an employer’s fundamental breach  of contract –  known as “constructive dismissal” – the employer will not usually be able to rely on a repayment clause in the employee’s contract of employment.    This is because when an employer fundamentally breaches the employment contract, the employee is freed from any terms of the contract that are intended to survive termination.  

It may be possible to draft the repayment clause so that the employee is required to repay the training costs regardless of the reasons for dismissal (which would include constructive dismissal), however there is no case law on whether this would be effective or whether it could potentially render the clause unenforceable.  

Can we recoup the training costs from an employee’s wages?

You can only do this if the employee’s contract or training agreement authorises you to make deductions from their pay for the training costs.  If there is such a clause in the contract, then you are permitted to deduct the training costs, or a proportion thereof, from the employee’s salary or any other payments owing to them on termination.   

Occasionally, an employee may argue that such a deduction constitutes an unlawful deduction of wages.  However, under section 13 (1) of the Employment Rights Act 1996, an employer is permitted to make a deduction from an employee’s wages if the employee has previously consented in writing to the deduction, providing that written consent has been obtained before the event giving rise to the deduction and not just before you make the deduction itself. 

In other words, as long as the employee gives their prior written consent to a deduction for training costs before the training commences, you will not be acting unlawfully if you decide to deduct any costs owed from the employee’s wages on termination.  

Do we need to worry about the National Minimum Wage?

Another argument that is sometimes made is that an employer should not deduct training costs from an employee’s wages if the result is to reduce the employee’s wages below the National Minimum Wage (‘NMW’).   It is important, however, to make a distinction here between mandatory training and voluntary training as the rules are different depending on what type of training it is.

Voluntary Training and the NMW

The rule under the National Minimum Wage Regulations is that a deduction from wages that is made for the employer’s own use and benefit will reduce pay that counts towards NMW (Regulation 12 of the National Minimum Wage Regulations 2015).   However, there are certain exceptions to this rule where the deductions do not reduce the amount of an employee’s total pay for the purpose of calculating whether they are receiving the National Minimum Wage (‘NMW’).  

These include where the deduction falls within the “conduct exception” which is defined as “any deduction in respect of conduct of the worker, or any other event, in respect of which [the worker] is contractually liable” (Regulation 33 (a) of the Regulations). 

What this means is that if the employment is terminated by the employee in circumstances where you have the contractual right to recover training costs from them (e.g. because they leave their employment voluntarily without or within 6 months of completing a course), any deduction made from an employee’s final wages in respect of the repayment of training costs can be ignored for NMW purposes.

Mandatory training and the NMW

If the training is mandatory – that is if it is training that the employer requires the employee to undertake – the rules appear to be different.  According to HMRC, mandatory training costs constitute an “expense incurred in carrying out employment” under regulation 12 of the NMW Regulations and any deduction made for the repayment of such costs will reduce pay that counts towards the NMW.  

Therefore, if the training you have paid for is training that the employee is obliged to do under their contract, you will need to ensure that any deduction made for the repayment of training costs does not bring the employee’s final salary payment below the NMW rate. 

Action Points

  1. Review your staff contracts to ensure that they contain a repayment of training costs clause.  This clause should be included as a matter of course in all employment contracts.
  1. Ensure that before you pay for any voluntary training course, you enter into a training costs agreement with the employee.  We recommend doing this even if the employee already has a clause in their employment contract dealing with the repayment of training costs. 
  1. Make sure you obtain the employee’s written agreement before any training course commences so that you do not fall foul of unlawful deduction of wages legislation.
  1. Check that the clause/agreement provides for a sliding scale of repayment whereby the employee’s liability is reduced in line with the length of time they remain in your employment. 
  1. Ensure that any training costs clause/agreement is drafted carefully to avoid any arguments that you are trying to enforce a penalty clause or are in breach of unlawful deduction of wages or NMW legislation.  

If you would like any help with clauses in your employment contracts or with a training agreement then please do not hesitate to get in touch as we can usually agree a fixed fee for this work.

Photo by Scott Graham on Unsplash

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The information contained in this blog post is provided for guidance and is a snapshot of the law at the time it is written. It is provided for your information only and should not be used as a substitute for obtaining legal advice that it specific to your particular circumstances.

The guidance should not be relied upon in any decision making process. It is strongly recommended that you seek advice before taking action.

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