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Why it is difficult to make departing employees pay back training costs

Since the government announced the introduction of new contracts that will cut doctors' pay premiums for evening and weekend working, there have been reports of a surge in young doctors seeking to work abroad. Having spent millions training them, most employers are concerned when faced with the prospect of an exodus of highly trained staff.

Employers cannot force employees intent on leaving to remain working, but there are ways to persuade them to stay: financial incentives, such as deferred share awards or extra holiday for each year employed, for example. And if a business invests heavily in staff by sending them on training courses, it could oblige those employees to reimburse the costs of the course if they leave within a certain period.

Any reimbursement agreement must be properly documented. If a business tries to secure reimbursement without agreement it could face claims of unauthorised deductions from wages. As well as getting a robust contract in place, employers using reimbursement as a retention tool need to take into account the national minimum wage, tax implications and the risk of an agreement to reimburse being declared invalid as a 'penalty clause'.

As long as they are structured and documented with care, deductions from salary for training courses that bring the wages the employee actually takes home below the national minimum wage can be justified without breaching the legislation, but they are problematic. In law any deductions in respect of tax, NICs, previous overpayments of wages or shortages in a retail till can be justified if they are agreed in writing with the employee beforehand. Deductions for materials or equipment necessary for employees to do their job are not justifiable.

It is best to avoid an agreement whereby the employer lends a sum to the employee to pay for a training course, on the understanding that the amount will be written off if the employee stays for a certain period. When the loan is written off, the entire amount becomes taxable as if it had been income paid to the employee, so it is preferable for the employer to pay the training fees directly and for the employee to reimburse the costs at a later date if this is considered necessary.

But this presents problems as a reimbursement clause in a contract could be seen as a 'penalty clause' which is unenforceable in employment contracts. It will be a penalty clause if the amount required to be repaid is ‘extravagant and unconscionable’ in comparison with the greatest loss that could possibly have been proved as a result of the employee leaving within, say, a two year timeframe. Employers need to take care that the contract only requires reimbursement of sums which have actually been spent on particular training courses by the organisation and no extra costs are added. It may be difficult to quantify accurately the cost of informal or in-house training. For instance, case law has shown that an arbitrary deduction of £500 could not be justified in respect of a 1.5 day induction course.

Salary deductions for a training course, where an employee leaves within a certain timeframe, can be justified if the deductions are authorised by the employee in writing and the deduction is because of the ‘employee's conduct or any other event’ which could include the employee's resignation or dismissal for gross misconduct. This means an employer cannot make the deduction if the employee is dismissed for redundancy or for no good reason, but it can if the employee resigns voluntarily.

It is possible to require employees to reimburse the cost of training courses if they leave shortly after completing them. Typically, businesses will require reimbursement on a sliding scale, such as 100 per cent if the employee leaves within one year, 50 per cent within two years and so on. It is vital, however, that such arrangements are structured correctly and agreed with the employee in writing beforehand.

Added: 06-10-2015

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