I. What is a Training Repayment Agreement?
Training repayment agreements, whether to assist employees with flight school, engineering designations, or the like, are common in the defence and security industry. However, these arrangements do not come without financial risk. Defence sector employers are often concerned that after an employee completes an employer-funded training opportunity, they may leave their employment to pursue other opportunities, sometimes with competitors.
Though an employer generally cannot stop an employee from leaving, using an effective repayment agreement can at least allow the employer to limit the financial risk associated with paying for training that the employee uses elsewhere. These arrangements can be set out in a new employee’s employment contract through a “training repayment clause” or could form a separate contract with the employee, known as a training repayment agreement (“TRA”). The general idea is usually that if the employee does not remain in their employment for a specified period of time, perhaps one or two years, then they are required to repay the employer for training provided.
II. How to write an effective Training Repayment Agreement?
There are certain requirements which employers must be aware of in order to draft an effective and enforceable TRA.
A. The Contract must be written clearly
Like any contract, the language in the contract must be clear and unambiguous. For a TRA this means the language must clearly outline the nature of the repayment, when the repayment is required and under what circumstances, and it can also be helpful to identify, to the extent possible, the value of the repayment or how it will be calculated. As the employer will have drafted the contract, a poorly drafted contract will typically be interpreted in favour of the employee where it is possible to have more than one reasonable interpretation of the clause or contract. This means an ambiguous agreement may result in the employee not having to repay the training costs. In order to mitigate this risk, it is imperative that the contract is clear and that the employee understands the agreement.
B. Specify the amount of money owed upon a breach
Defence sector employers should also be aware of certain limitations on TRAs that may be outlined in the relevant provincial or federal employment legislation. For example, the Ontario Employment Standards Act, 2000 specifies that wages cannot be deducted if the employee was not made aware of the exact amount or formula for the calculation of deductions.[i]
Employers may also be curious as to the amount they are legally entitled to recoup in the event of a breach of the TRA. Recent case law suggests that a TRA whose repayment obligations may be classified by a court as “unconscionable” or “extravagant” will not be enforced. This means that the amount owed should not appear to be punitive to the former employee.[ii]
C. Only actual training costs can be recovered
These types of agreements should also be limited to collecting the cost of a training program itself without extraneous additions. They cannot be used to collect broader business costs which would have been incurred regardless of the employee’s departure. In fact, the recovery of business costs from an employee is explicitly barred in some provinces.[iii] Practically, the court has been clear that the monetary value of the training given to the employee should be functionally equivalent to the amount specified in the training repayment agreement as owed to the employer.
D. The Contract cannot include restraint of trade provisions
Other considerations include ensuring that the repayment agreement must not prevent the employee from utilizing the training they received at a competing employer. A training repayment agreement may be unenforceable if it is a form of anti-competitive activity that disallows the employee from working for a competing employer after being trained.[iv] As a result, while the agreement could recoup the cost of the training program, it cannot prevent an employee from taking their new skills to a competitor in the defence industry.
III. What makes a “Training Repayment Agreement” enforceable?
A. Circumstances of the Employee’s Departure
A training repayment agreement can be enforced whether the employee resigns or is terminated (with or without cause), permitting that the agreement expressly explains when it can be enforced. The employee must be aware that the agreement can be enforced regardless of the method through which their employment ended. Otherwise, a court can only enforce what is clear from the wording of the contract.[v] If the training repayment agreement is ambiguous as to its enforceability, a court could potentially refuse to uphold the clause entirely.
B. Value of the Training to the Employee
The training should be a “personal asset” to the employee outside of their exact position with the employer.[vi] Otherwise, the monetary value of this training cannot be expected to be reimbursed by the employee upon resignation, as it has no value to them outside of their work with their former employer. For example, if your business manufactures a proprietary part that no other company can manufacture, and the relevant training related to that part, then the training is likely not a personal asset to the employee outside of your business and the cost of providing the training likely cannot be recouped. Such costs would be considered operational or business expenses, which are not likely to be recoverable from former employees. In other words, if the training received by the employee solely benefits the employer, then the TRA may not be enforceable.[vii]
As is implied from the above, this does not extend to broader industry certifications that are transferable to other jobs within the industry. For instance, in Wildcat Helicopters Inc. v Ellis, the BC Supreme Court upheld a TRA where the employee had received a considerable portion of a helicopter training endorsement that would benefit him in his career, but the working relationship broke down before he could complete the two-year employment period agreed upon in his contract.[viii] As a result, the employee was ordered to repay the cost of the training he completed.
IV. Important Takeaways
TRAs are becoming more common features in Canadian employment contracts, especially in industries where it is common that significant training is undertaken by employees at the expense of the employer, such as the defence and security industry.
To build a strong and enforceable TRA, an employer should ensure that the clause is clearly worded and denotes the exact recoverable amount (or formula to determine the amount to be recovered). The clause should not seek to recover regular or unrelated business costs or bar the employee from applying their training when working for a competitor.
Additionally, employers can only recover costs for training which are beneficial to the employee outside of their specific position. That said, TRAs that seek to recover the costs associated with the employee obtaining industry certifications with broad application are likely recoverable.
[i] Employment Standards Act, 2000, SO 2000, c 41, s 13(3)–(5).
[ii] Save Max Real Estate Inc v Dutta, 2019 ONSC 6116, [2019] OJ No 5609.
[iii] See for example: Employment Standards Act, RSBC 1996, c 113, s 21(2).
[iv] Renaud v Graham, 2007 CanLII 5680, [2009] OJ No 597.
[v] Ibid.
[vi] Créances garanties du Canada ltée c Commission des normes du travail, 2008 QCCA 1428, [2008] JQ no 7149, 172 ACWS (3d) 945, [2008] RJDT 1021.
[vii] 889946 Alberta Ltd. v Carter, 2002 ABPC 28, 308 AR 201.
[viii] Wildcat Helicopters Inc. v Ellis, 2016 BCSC 2214, 2016 CarswellBC 3350, [2016] BCJ No 2501, 273 ACWS (3d) 554, 38 CCEL (4th) 225.
