FDM and others under fire for training schemes | On what basis can staffing companies lawfully charge workers for training?

Written on 11 Jul 2018

Some commentators believe the Apprenticeship Levy is just the start of measures to get the UK workforce better trained.  Skills shortages, government concerns about productivity and likely government worries about the need to find replacement work for people whose jobs are affected by robotics and AI are all pointing to a lot of activity in this area in the next few years.

Staffing and other companies operating a staffing model are now looking at this carefully and see real opportunities to provide value added services, and build new revenue streams at better than usual margins: they are offering to train people and then lease them out/hand them over to clients (for a fee!).

However there has now been adverse comment about certain training/re-training schemes, including those run by FDM, with talk of legal action against providers of such schemes.

But why would businesses invest in training if they are worried about recouping the cost?

Up-skilling the workforce, but at what cost?

The cost of taking on trainees or taking people out of the business to participate in training, coupled with the expense of the training course itself, can be significant. Whilst businesses can and must factor these costs into how their business grows and develops, the trickier issue to deal with, and indeed quantify, is the very real practical risk of a newly up-skilled worker leaving (e.g. after being poached by a competitor or client) perhaps only a few weeks after completion of their training. Restrictive covenants may help in some situations, but often they will not, especially for more junior staff. And of course, the workers may not be leaving to join competitors or clients in respect of whom restrictions may be appropriate.

But the knee-jerk reaction of demanding back from the worker the money spent on their training, or withholding it from their final payments (such as salary), leaves an employer vulnerable to statutory and contractual claims.

So, what can be done?

A contractual right to recoup training costs 

Staffing companies (and consultancies operating a staffing model), need to be careful about criminal prohibitions in the Conduct Regulations about what they can charge workers and what restrictions they can include in their contracts, but these prohibitions do not prohibit charges in all circumstances.

Assuming that regulatory issue has been covered off, a mechanism commonly used to deter employees from moving on immediately in such scenarios is a ‘repayment clause’, incorporated into the employment contract or perhaps in a separate training agreement.  Such clauses are not a new concept, but equally are not without issue.  A repayment clause will be carefully scrutinised by the courts as potentially being a ‘penalty’ (the argument being that the amount demanded for repayment is disproportionate to the employer’s loss) or acting as an unreasonable restriction on the employee’s activities; in each case rendering the clause unenforceable.

In an effort to achieve a balance, it is not uncommon for employers (including consultancies operating a staffing model) to time-limit such provisions; this is often achieved by providing that the employee only has to re-pay an element of the training costs if they leave during or within, say, two years of completing the training course.  Repayments are made subject to a sliding scale, so the employee has to repay less of the costs the longer they have remained with the company after receiving the training.  So, for example, an employer may seek to recoup 75% of funding if the employee leaves within six months of finishing a training course, 50% if he/she leaves within 12 months and 25% if he/she leaves within 18 months.  There may, though, be circumstances where it is considered inappropriate to demand repayment, such as on a compulsory redundancy.   And an employer wanting to obtain any reimbursement under a repayment clause from any final salary payments must expressly reserve the right to do so in the contract.  A unilateral retrospective deduction will be a breach of statute and contract.

Some staffing companies that have started operating more of a consultancy model and have taken on training of workers for clients have mirrored such arrangements, which often work alongside provisions relating to what end-users/hirers have to pay once the worker has been trained and then hired direct by the end-user/hirer.

But is the reality ‘tied servitude’ and individuals ‘labouring under this bond’? 

Last month saw a spotlight thrown on outsourcing and professional service providers such as FDM, who have adopted the practice of requiring individuals on internal training programmes to repay training costs should they leave within a specified period after completion of the training.  This practice has been described as leaving individuals feeling ‘locked in‘ to jobs they cannot afford to leave.  Indeed, a barrister backing a legal case to challenge the practices of these companies has described the schemes as ‘tied servitude‘ and is now seeking assurances that young men and women ‘permanently labouring under this bond‘ will be released.  The issue has most recently come to the attention of parliament with Frank Field MP writing to Business Secretary Greg Clark urging him to launch a ‘public inquiry into the extent and consequences’ of the use of repayment provisions ‘trapping vulnerable workers in a particular arrangement over an extended period of time’ and ‘regardless of whether they need to leave the scheme for family, health and professional reasons’.  He further notes that he has ‘significant doubts‘ as to whether the training fees demanded for repayment are in fact accurate – allegations have been made that the amounts demanded for repayment are far too high, especially in cases where the quality of training is disputed.   

So should business now stop using these clauses?

Re-payment clauses are  used by many businesses, permeating across sectors and industries. However, businesses must be alert to the negative publicity and reputational impact such clauses may have in the current climate, as well as the very human impact on their workers.  Whilst the wider public are unlikely to be offended by a one-off requirement for a high-earning senior executive to repay costs associated with, for example, an MBA, should he/she leave within a specified period, the impact of a policy of applying automatic re-payment provisions for training courses for junior and low paid individuals, seeking to forge their careers, may attract negative media attention and a knock-on impact on quality recruiting long term.  This will inevitably also have a knock-on impact on those staffing companies and the like who do offer good and indeed, in cases, excellent courses (which FDM’s market reputation suggests it does as well) – valuable to both the individual and the business – but who may be more reluctant to invest money with limited opportunity for recoupment when that value is lost.  A real focus for businesses must be to scrutinise the training they are providing and ensure a culture where individuals want to stay and work.  If businesses stop training altogether where would that leave the UK?

However there is a potentially difficult climate developing. Matthew Taylor’s review of the modern workforce has provided a real and sharp focus on the vulnerability of low-paid workers (working in traditional employment models, as well as the relatively new gig platforms) and the need for our employment laws to adapt and evolve to provide them with adequate protection.  With a crowd-funding project seeking to challenge the repayment clauses in the courts, businesses can also expect more questions over the legality of such provisions.  Indeed, one of the companies which has been under the media spotlight this month is reported to have now changed its policy after receiving notification of legal action from a former graduate trainee.

As staffing and other businesses seek to grapple with how increasing technology is changing their and their clients’ workplaces, coupled with a climate of increasing scrutiny of employment practices and greater transparency around pay and diversity within the workforce, any practice of using repayment clauses must be given proper consideration. Where a decision is taken that such clauses are appropriate (subject to the outcome of any parliamentary inquiry), and/or should be enforced in a particular situation, an element of discretion should be retained given this is likely to be an area that the media and the courts focus on over the next few years.

Businesses should in the meantime:

  • Make sure that any recoupment clause is balanced in the way recommended in this article and does not breach the Conduct Regulations.
  • Ensure training is of an acceptable standard and valued by attendees, with attendees’ views of the training carefully monitored.
  • Keep an eye on political/legal developments in this area.