Employers are often willing to provide employees with further training. Such financial support is typically motivated by the expectation that the knowledge and/or skills acquired by the employee will inure to the benefit of the company in the future. However, if the employee leaves the company shortly after or even before the training is completed, the employer will understandably wish to be paid for the costs it incurred for the training. This article reveals the limitations surrounding an employer's claim for reimbursement.
The Necessity of an Agreement
The employer and employee must first agree upon the employee's obligation to reimburse the employer for the cost of further training if the employee leaves the company within a certain period of time, since there are no legal presumptions leading to the automatic duty of repayment. The agreement should be in writing and signed by both the employer and the employee. Whether the agreed-upon repayment obligation is enforceable will be assessed on the basis of principles developed by the German Federal Labor Court (Bundesarbeitsgericht; BAG)—and any mistakes in the agreement can render the reimbursement claim unenforceable.
The Employer's Legitimate Interest
To be in a position to claim repayment, the employer must have an evident interest in the skills taught in the employee's training. This is generally the case if the employee acquires new qualifications and skills that can be useful for the company. In contrast, a legitimate interest on the part of the employer may be denied if the employee merely attends refresher courses, since such courses generally do not enable employees to obtain higher-paying positions elsewhere.
Adequate Duration of the Commitment Period
It is necessary to assess the individual reasonableness of any repayment clause. The most important question is whether the period during which repayment is required in the case of resignation is reasonable with respect to the costs invested and the scope of the training. As a rule, the longer the training course, the longer the commitment period. Established practice (e.g., BAG judgment dated January 19, 2011, 3 AZR 621/08) has resulted in the following guidelines, which should be tailored to the individual circumstances:
- If the training takes up to one month with continued payment of remuneration, the employee's commitment period must not exceed six months.
- If the training takes up to two months, a commitment period of up to one year can be justified.
- If the training takes three to four months, the commitment period may last up to two years.
- If the training takes six months to a year, a commitment of up to three years can be justified.
- If the training takes two years, a commitment period of up to five years may be admissible.
Differentiating Between the Reasons for Resignation
It is necessary to specify the circumstances under which a resigning employee will incur the obligation to reimburse the employer for training. For example, the employee may avoid the payment obligation if he/she is not ultimately responsible for the termination. But simply differentiating between a notice of termination given by the employer and a resignation tendered by the employee is insufficient, since an employee may resign because of a breach of contract by the employer (e.g., BAG judgment dated December 13, 2011 – 3 AZR 791/09). In accordance with current trends in legal practice, it is recommended that the employer stipulate the repayment obligation only if:
- After completing the training, the employee resigns within the specified period of time for reasons outside the sphere of the employer (e.g., resigning without providing notice for a reason for which the employer is not responsible); or
- The employer terminates the employee without notice for an important reason for which the employee is responsible, such as theft or embezzlement, or with notice for a reason based on the employee's conduct, such as disobedience or repeated tardiness.
These differentiations should be clearly described in the repayment agreement.
Transparent Repayment Amount
According to the most recent ruling of the BAG (judgment dated August 21, 2012 – 3 AZR 698/10), a repayment clause is ineffective if neither the exact nature of the costs in question nor their amounts are specified. While a precise determination may not always be possible, the data must be presented in a way that enables the employee to evaluate the risk of repayment. It is therefore necessary for the agreement both to provide a precise and final description of the individual items (e.g., tuition, travel expenses, accommodation charges, and meal allowances) and to specify the parameters for calculating them (e.g., mileage allowance for travel or daily rates for accommodations and meals). Failure to specify the calculation method—i.e., naming only a lump sum or maximum amount—may render the repayment agreement ineffective.
Adequate Repayment Amount
The repayment amount must be reasonable in relation to the time period during which the employee's leave might trigger repayment. If the amount in question is rather high, it may be advisable to arrange the repayment obligation so that the longer the employee stays with the employer, the less he or she must pay; indeed, a court is more likely to enforce repayment when the time period in question is shorter. We therefore recommend stipulating a monthly reduction of the repayment amount on a pro rata basis. For example, if the employee's repayment commitment is for two years, the amount could be reduced by 1/24 for each month that the employee remains with the employer after concluding the training.
The agreement concerning the obligation of a resigning employee to reimburse his/her employer for further training is governed by numerous requirements. Because mistakes can render the repayment obligation unenforceable, a safe arrangement is possible only when the guidelines set forth in established legal practice are observed and when the relevant facts in the individual case are taken into consideration.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.