“We have recently undertaken our annual appraisal process and a number of employees have asked to be sent on courses as part of their ongoing learning and development. We are keen to support this but we have a concern that employees might finish their course and then use their new skills to find work elsewhere. If they do, can we ask for the course fees back?”
Your question mainly relates to the law on making deductions from employees’ wages, which allows deductions to be made on three grounds: where required by law, required or authorised by the employment contract, or where you have the employee’s consent. In this case, the first ground is unlikely to be relevant, as ‘required by law’ usually refers to tax and national insurance deductions.
In relation to the second ground, many employment contracts contain a clause allowing the employer to make deductions, with some specifying examples of where that might occur, and others using more general wording. It may be possible to rely on such a clause, but the employee may try to argue that it wasn’t clear from their contract that deductions would be made in the scenario that you describe. As such, a more tailored form of wording is generally safer.
For new employees in future, that wording could be contained in the employment contract, perhaps in a separate clause that outlines how and when course fees will be recouped in the event of a resignation or dismissal. However, using a generic form of wording in the contract may not always be helpful, as you may wish to impose different arrangements in different circumstances.
For that reason, we generally recommend that employers use a separate ‘training fees agreement’ document, and have the employee sign it to give their consent to the deduction (the third ground). Doing so will allow you to draft a tailored agreement each time that you are going to incur fees in this way.
The main detail in the agreement should be the circumstances in which the fees need to be repaid. For example, you could state that fees need to be repaid if the employee leaves or is dismissed in the two years following completion of the course.
Many employers ask for repayment on a sliding scale, i.e. the longer the employee works after completion of the course, the less that they have to repay on departure. For instance, you could ask for 100% repayment if they leave within six months, 75% within a year, 50% within 18 months and 25% if they leave within two years. The time frames and percentages can be decided at your discretion.
While it can be stipulated that repayment is due in the event of resignation or dismissal, we generally recommend not requiring repayment in the event of compulsory redundancy, for two reasons. Firstly, it is likely to be viewed as harsh to dismiss an employee for redundancy and at the same time require them to repay training costs, particularly where the repayment might mean that they leave with no redundancy pay.
The second reason relates to the national minimum wage (NMW). Some deductions must be taken into account when calculating whether an employee has been paid the NMW, such as where you deduct money to cover the cost of a uniform or work meal. However, other deductions can be ignored for NMW purposes, such as an overpayment of wages. That means that the person’s hourly pay can be below the NMW after the deduction without the employer being in breach of the NMW legislation.
In the context of fee repayments, the law allows a deduction to be ignored if the deduction is because of the worker’s conduct or any other event in respect of which the worker is contractually liable. The ‘other event’ part is significant here, as the case of HMRC v Lorne Stewart supports the idea that it would include the employee resigning or being dismissed for a conduct reason.
However, the tribunal in that case suggested that a deduction could most likely not be ignored if the employee were dismissed due to compulsory redundancy. In short, in a redundancy situation, deducting money to recover fee payments could lead to a breach of NMW legislation if the employee’s pay in that period fell below the minimum hourly rate.
In terms of the mechanics of recovering the fees, it is generally best practice to agree a schedule for repayment with the employee, perhaps over more than one salary payment where possible. However, many employees may have to give only one month’s notice, meaning that you have only one payment to make the deduction from.
Depending on the amount to be repaid, it is possible that the employee’s entire last pay could be spent repaying the fees. That leaves an obvious question as to whether it’s fair to do that to an employee who is likely to have financial commitments to cover, even where you have the contractual right to do so.
In that event, you may wish to consider other options, such as requesting a smaller amount to be repaid, or giving the employee time after their departure to repay the fees.
If you have any questions on any of the issues raised in the above article, please contact Seanpaul McCahill.