Unfair deductions for training costs

Napthens - September 12th 2019

Deductions for training costs

The repayment of training costs has once again hit the headlines. Last year, it was Capita and FDM Group who were reported to be charging employees who left their training service up to £20,000. With Capita admitting that their practice was unlawful. This year a Costa Coffee Franchise operated by Goldex Investments Essex, have been accused of making unfair deductions from former employees.

Can deductions be made?

The short answer is yes. However, in practice it isn’t quite this simple and deductions for training costs can only be made provided certain criteria have been met. Firstly, the employer should have prior consent from the employee, should this be made as a deduction to their wages, failure to do so could result in this being treated as an unlawful deduction of wages. Secondly, any sum deducted should be fair, reasonable and reflect the value that you, as the employer, have gained from the employee undergoing the training. Finally, all reasonable steps should be taken by the employer to mitigate any loss and this should be reflected in the sum deducted from the employee.

What practical steps can be taken?

From April 2020, under the Good Work Plan all employers will have to include details of training, which the employee undertakes, in their section 1 statements and this should provide for any amounts they must repay, if any. As a result, contracts of employment should contain a clause detailing any repayments to be made for training costs. In order for the repayments to be lawful and not be deemed a penalty clause they should be fair and reasonable and be an accurate representation of the value the employer has gained. In some cases, the costs you are seeking to recuperate from the employee will be in excess of their final salary, so what can you do? If you envisage that the training cost is going to be significant, it may be worth asking the employee to sign a separate agreement prior to them commencing the course. The agreement can include a cravat that if their final payment doesn’t cover the sums owing, you reserve the right to recover the sums by way of a debt.

Typically, the maximum period an employer can seek repayment of training costs is for 2 years, on a sliding scale basis. The sliding scale reflects the value that you have gained from the employee’s additional experience. The standard view is that before, during or 1 year after the course 100% of the costs can be recuperated. However, there is a possibility that where the training is of a high cost that this could be extended, although this is does contain a risk that the tribunal may deem the clause to be a penalty and as such non-enforceable.

Perhaps unsurprisingly, the employer is under a duty to mitigate any loss for the cost of the training. Some practical steps to mitigate the loss could be: If the employee leaves before starting the course or part way through, seeing whether you can cancel the training and reclaim any of the fees; or if the employee leaves part way through a course, seeing whether their new employer would cover the costs.

When can’t you make deductions?

There are some circumstances in which deductions cannot be taken from an employee for training costs. Where an employee is made redundant, unless voluntary, they would not be required to repay their training costs. Likewise, if an employee is dismissed for any reason other than gross misconduct then they would not be required to repay the training costs. Finally, if the employee resigns in response to a fundamental breach by you, then they would not be required to repay the training costs. This being said, you could require the employee to repay the training costs where you dismiss them for any reason (other than redundancy). However, there is no case law on this matter and as such is unclear how fair or valid a tribunal would find this, if challenged.

If you require any assistance with training costs, then please don’t hesitate to contact a member of the team.