Springhouse Solicitors

Forced repayment of training costs lawful

Was it lawful for a company to force their employee to repay their training costs even though this effectively took them below the minimum wage?

Yes it was, where the contract was clear about this, and the dismissal was the fault of the employee.

We report on the recent case of HMRC v. Lorne Stewart Plc.

Background

Under the National Minimum Wage Act 1998, some deductions from wages count to reduce the effective amount of wages paid, which can bring final payments below the legal threshold.

On the other hand, some repayments by employees will not count to reduce the amount of money they are paid by the employer. One such repayment is “any deduction in respect of conduct of the worker, or any other event, in respect of he … is contractually liable”.

In the case we are reporting on, the employee in question was required under her contract to repay training costs should she leave within 2 years.

As there was no dispute that there was a contractual liability to repay the money, the argument was whether or not the word “conduct” or the words “or any other event” covered the situation where the employee merely resigned, and was not guilty of any misdeed. HMRC argued that the “conduct” of the worker or “any other event” must refer to some sort of misconduct on the part of the employee, if this were to give the employer authority to make the deduction with impunity.

The Employment Appeal Tribunal held that the exception did apply in this case, because the conduct of the employee was voluntary resignation, and not forced on her by the employer. Therefore the employer was entitled to claim the money back even though there had been no misconduct on her part.

Implications

This case exposes a little known ‘loophole’ in the National Minimum Wage legislation. This means that a low paid employee can generally get out of repaying training costs where they have not resigned or committed any misconduct, and repayment would bring them below the national minimum wage.

In order to avoid getting into difficulties, employers will need to bear this in mind when they are seeking to recover training costs, which is a common practice.