Training costs and repayment agreement

Unreasonable discrimination in the event of self-termination due to illness

The repayment of training costs was the subject of the Federal Labour Court (Bundesarbeitsgericht – BAG) ruling of 1 March 2022 - 9 AZR 260/21. In this ruling, the Federal Labour Court dismissed a company's claim for reimbursement of training costs against an employee on the grounds of a violation of Sec. 307 Para. 1 Sentence 1 German Civil Code (BGB).

In the case underlying the Federal Labour Court ruling, a geriatric nurse had attended a vocational training course at a rehabilitation clinic. Costs of the training amounted to EUR 4,090.00. The parties to the employment contract had concluded a "contract for advanced training". The commitment period agreed therein was to be six months - that is how long the employment relationship was to continue after the end of the training measure. 

In the event that the employment relationship should end within these six months due to a circumstance for which the employer was not responsible, the parties included a clause in the contract according to which the training costs were to be repaid by the employee under certain conditions. The clause also provided for a pro rata reduction of the repayment, i.e. a graduation of the repayment amount in the event that the employee left the company within the six-month commitment period. 

On 3 December 2019, the defendant employee completed the advanced training. In a letter dated 29 November 2019, she terminated her employment as of 1 February 2020. The employer thereupon requested her in a letter dated 30 December 2019 to repay the training costs on a pro rata basis in the amount of EUR 2,726.68, thus a proportion of 4/6 of the total costs. 

The Federal Labour Court dismissed the action. In its reasons, the Federal Labour Court stated that the training contract did contain a repayment obligation for all of the employee's own terminations that were not based on a reason for which the employer was responsible. However, this also covers the case in which the employee gives notice of termination because, through no fault of her own and without any contribution of the employer to the cause, she is permanently not (or no longer) in a position to use the qualification she acquired with the advanced training financed by the employer within the scope of the contractually owed work performance. The Federal Labour Court considered this constellation of a repayment obligation to be an unreasonable disadvantage for the employee within the meaning of Sec. 307 Para. 1 Sentence 1 German Civil Code. The circumstance that the investment in the advanced training of an employee does not pay off for a company due to permanent inability to perform through no fault of the employee is to be attributed to the entrepreneurial risk. The restriction of the employee's job-related freedom of choice of occupation guaranteed by Article 12 Para. 1 Sentence 1 of the German Constitution (Basic Law) is also not compensated for by the training advantage in the event of the employee's inability to perform. If, for health reasons through no fault of her own, it was therefore permanently impossible for the employee to perform the work owed, she would be obliged, if the repayment clause in the training contract was effective, to maintain the employment relationship after the end of the period of continued payment of remuneration without consideration from the employer in order to avert the repayment obligation. The Federal Labour Court considered this to be an unreasonable disadvantage for the defendant employee.

In principle, the repayment agreement in the case decided already included the most important elements of an effective repayment agreement. These include an appropriately long commitment period in relation to the duration of the advanced training, a graduation of the repayment amounts, and a distinction between reasons for the termination of the employment relationship originating from the sphere of the employee and those originating from the sphere of the employer. However, the employer had overlooked the constellation that was decisive for the Federal Labour Court, namely that the employee was no longer able to use the acquired qualification in her job through no fault of her own due to illness and therefore gave notice of her own termination.

Repayment agreement as general terms and conditions

Once again, this decision shows how carefully a repayment agreement has to be drafted. Basically, a company wants to grant its employees the opportunity and the appropriate attractive conditions to attend training events for further qualification. On the one hand, this is to ensure the continuous advanced training of the employees, and on the other hand to score points with applicants as an attractive employer. But how can this also be used to effectively retain employees without restricting their professional freedom?

This always raises the question of whether a fixed commitment period and the agreement of a repayment clause constitutes an unreasonable disadvantage for employees within the meaning of Sec.307 Para. 1 Sentence 1 German Civil Code. Since such training contracts will mostly be general terms and conditions (GTC), they are subject to the strict control of Secs. 307 et seq. German Civil Code. The Federal Labour Court has established a standard for this control.

According to this, a commitment to the company bearing the costs of the training or otherwise the repayment of the training costs by the employees is permissible in principle. However, the rules are strict. And there is only an "all-or-nothing principle": If the repayment agreement does not stand up to the Federal Labour Court's strict standard, it is void as a whole and the company has no claim to repayment.

Circumvention of GTC control by individual agreement?

A resourceful company could now come up with the idea of circumventing this strict standard by means of an individual agreement. Just like works agreements or collective bargaining agreements, these are not subject to the standard of Secs. 307 ff. German Civil Code. But: Employees are consumers, so that agreements with them must always be examined according to the law on general terms and conditions. Only if almost every word of a repayment agreement was negotiated between the parties would it be possible to avoid a review of the general terms and conditions. In practice, however, this will hardly be the case.

How to do it right?

In a large number of decisions, the Federal Labour Court has laid down precise and very detailed rules for structuring repayment obligations. In order to create a repayment agreement that withstands the Federal Labour Court's standard of review and does not represent an unreasonable disadvantage to employees, the following points in particular must be observed with the utmost care when drafting the contract:

Specific commitment period

The permissible commitment period depends on the duration and quality of the training measure. As a general rule, the longer the training, the longer the commitment period may be. A graduation is therefore to be carried out: For example, if the qualification measure lasts one month, the Federal Labour Court allows a commitment period of up to six months as a guideline. If the training lasts two months, a commitment period of up to twelve months may be appropriate. However, the Federal Labour Court draws the upper limit at a maximum commitment period of 60 months, which also corresponds to the statutory maximum of five years for a contractual commitment set out in Sec. 624 German Civil Code. An employer may also not exceed this either. Experience shows, however, that the vast majority of repayment clauses are based on a shorter commitment period anyway.

The commitment period also depends on whether the training increases the market value of the employee. Because only if the training increases the overall market value of the employee is a retention of the employee beyond the duration of the training permissible at all. It is therefore not legally possible to commit employees to the company for every type of training they attend. Attending a training course that does not directly serve the purpose of further professional qualification and thus does not increase the employee's market value at all cannot lead to a permissible commitment of the employee to the company beyond the duration of the training course.

Staggered repayment

It must also be stipulated that in the event of premature termination of the employment relationship, the employee is obliged to repay an amount depending on the time already elapsed after completion of the advanced training, i.e. a pro rata reduction must be made. In the case decided by the Federal Labour Court, the parties had stipulated that with a commitment period of six months a pro rata reduction of 1/6 per full month of the agreed commitment period had to be made. The Federal Labour Court had no objections to this. 

Differentiation according to the reason for termination

When drafting the repayment agreement, a differentiation according to the reason for termination of the employment relationship during the agreed commitment period must also be made as a prerequisite for the repayment obligation. If the employment relationship is terminated, the Federal Labour Court only permits a repayment obligation on the part of the employee if this is clearly due to a "fault" on the part of the employee. Thus, for example, an obligation to repay in the event of termination by the employer for reasons of conduct is not judged to be unreasonable. In contrast, a termination by the company for operational reasons must not be linked to an obligation to repay the work. The constellation in which employees, due to a permanent hindrance of performance for which they are not responsible, are not (or no longer) in a position to apply the additional qualifications gained in the advanced training in their jobs and therefore terminate the (meaningless) employment relationship by giving notice of termination themselves, is equally not permissible.

When is a repayment agreement not permissible?

As already indicated, a repayment agreement is not permissible if the employees are only just being put in a position to perform their job as a result of the training. Even if the employees attend other training courses that are predominantly in the interest of the company, a repayment obligation will not be permissible. If employees do not increase their market value at all as a result of the training, i.e. they would not be in a better position on the job market with this qualification, a repayment obligation is also not justifiable. 

Effective repayment agreements cannot be made for training contracts either. The training is the core of the contractual relationship and it would be contrary to the spirit and purpose of the training contract to agree on a repayment of training costs in the event of premature termination of the training relationship.

Alternatives to repayment agreements?

In terms of personnel policy, repayment agreements send a disastrous signal: training is indeed desired and encouraged, but only if the company benefits from it in the long term. They are only suitable to a limited extent for retaining employees, since they always entail a certain compulsory obligation, which runs counter to the widespread attitude to work and life of many employees today. If loyalty to the company is only maintained in order to avoid an obligation to pay, a repayment agreement can hardly be classified as a sustainable incentive. Even though this blog post has been able to outline the legal framework for effective repayment agreements on training costs: It is always more sustainable to motivate employees through a good and positive corporate culture.