Protecting training investment by ‘bonding’ an employee for a period of service

Where the employer pays for an employee’s training, can they recoup that investment by requiring the employee to remain with the organisation for a certain period?  The short answer is ‘yes’.  But it will be important to ensure that the relevant terms are carefully drafted.

In ABC Developmental Learning Centres (NZ) Ltd v O’Meara (Employment Relations Authority, 21 May 2012) a trainee teacher was ordered to repay $11,987.67 when she left half-way through a two year bonding period.  The facts of this case were that ABC agreed to support the employee’s study towards a Graduate Diploma in Early Childhood Education – by paying fees and continuing to employ her during her study and while she was absent doing practical experience.

The employee signed a Return of Service agreement which stipulated that she would continue to work for ABC for two years after completing the Diploma. The agreement stated that if she failed to complete two years of service, then she would repay “all practicum costs and study fees paid”. The employee duly completed her diploma, was promoted to be a qualified teacher and received a pay rise.  She then resigned from her position approximately one year earlier than required by the Return of Service agreement. There was no dispute that the employee was in breach of the agreement and that ABC was owed money, but there was a dispute over the actual amount due.

The Authority held that ABC needed to be reimbursed for the following:  wages paid while the employee was away on practica, wages paid while she away on block courses (due to an amendment to the original agreement), and tuition fees.

The Authority also considered whether the amounts payable should be reduced as a result of the teacher having worked for a portion of the required service. It held that the purpose of the Return of Service agreement was to reimburse ABC’s costs if the two year period was not completed in full.  There was no mention in the agreement about part costs and there was no contemplation or discussion of partial payment, so full repayment needed to be made.

On this point, the Authority referred to an earlier case involving the same employer and a similar contractual arrangement:  ABC Developmental Learning Centres (NZ) Limited v Plasmeyer.  In that case the teacher resigned shortly before attaining her diploma qualification and did not actually begin the two year service period. The Employment Court held that ABC was entitled to $6,843.98, being the cost of the wages paid to the teacher during her absence on three practica which totalled about 15 weeks. In doing so, the Court noted that ABC had to arrange alternative staff at a cost to it during those periods, so the teacher’s wages were a ‘cost’ to ABC.  The Court also noted that “cost meant cost” and disagreed with an earlier analysis of the Employment Relations Authority which had reduced the amount of wage reimbursement by half after undertaking a cost/benefit analysis.

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