Protecting Your Company’s Investment With a Training Reimbursement Agreement
This article appeared in the May/June 2023 issue of MiMfg Magazine. Read the full issue and find past issues online.
When it comes to investing in employee training, especially long-term training that provides transferable certification like Registered Apprenticeship, companies often ask the question, “What if I train them and then they leave?”
The reality is that not training your employees can have a negative impact on your company. Multiple studies over the years have shown that an employer’s investment in job-relevant training for employees increases productivity and profits, decreases absenteeism and lowers accident rates.
Such investment also increases job satisfaction, morale and employee engagement, all of which directly translate to lower turnover (with the most impressive impact at high-turnover employers).
But, even armed with all that data, it only takes one instance of an employee leaving soon after completion of an in-depth training program to make an employer question if paying for all this training stuff is really worth it.
Setting Expectations & Commitments
What if there were a way for your company to ensure a fair return on your training investment? There is, and it’s called a training reimbursement agreement (sometimes also referred to as a training repayment agreement).
A training reimbursement agreement is a contract between employer and employee. The employer commits to paying for specified training. In return, the employee commits to work for the employer for a specified reasonable time after completion of said training or to reimburse the employer for some or all the training costs if they leave prior to the end of that time period.
The biggest benefit of these agreements is in setting an expectation, understanding and commitment on behalf of the employer to make the investment and for the employee to work for the company for a defined and agreed upon period as part of the bargain.
These agreements, therefore, discourage employees from “jumping ship” upon completion of training. But, if they do, the contract makes clear that the employer isn’t expected to be stuck with the bill.
Getting into the Legal Aspects
It probably goes without saying that I am not a lawyer, nor do I play one on TV or anywhere else. Due to the complexities and ever-changing environment of Michigan’s legal landscape, you should consult trusted labor and employment counsel for advice before implementing a training reimbursement agreement strategy.
Having said that, the legitimacy of Training Reimbursement Agreements has been upheld in the courts, both in Michigan and at the federal level, with some very important key limitations.
In the 2010 case of Gordon v. City of Oakland (California), the 9th Circuit U.S. Court of Appeals ruled that employers can require workers to repay training costs as per a repayment agreement. In this case, the city’s police department required, through a collective bargaining agreement, an officer to repay police academy training costs if the officer voluntarily quits or resigns within five years of training completion. An officer who resigned after two years filed suit when the city withheld a portion of the training costs from her final paycheck and billed her for the balance. It’s important to note that the city did not withhold wages for work performed — which are legally due an employee as compensation — from the employee’s final paycheck. Instead, the employer “took the money from her unused vacation time and other benefits” and this was upheld by the court.
Here in Michigan, the case of Sands Appliance Services v. Wilson went all the way to the Michigan Supreme Court. In this case, the court ruled that a “tuition contract” does not violate the state’s Payment of Wages and Fringe Benefits Act so long as the training offered is optional and not required by the employer as a condition of hiring or continued employment. If, however, the training is mandated by a company for an individual to obtain or keep employment, the employer cannot legally require or expect reimbursement of the cost of that training from a departing employee.
The Bottom Line
As stated earlier in this article, a training reimbursement agreement’s biggest benefit can be that it sets an expectation of investment and commitment by both parties. Employers have said the option to recoup the cost of training is of lesser importance to them but the agreement is worthwhile if all it does is make an employee think twice about leaving before their commitment period is fulfilled.
There have even been cases of an individual applying for a position with a new employer, informing that new employer of their training reimbursement commitment, and the new employer “buying out” the contract as part of a hiring incentive package.
So if the question of “What if I train them and then they leave?” has you debating whether or not to invest in training and upskilling your employees, consider how your company might decrease that perceived risk by using a training reimbursement agreement.
Or you could just trust in the data that indicates investments in training your workers provide tons of benefits when you’re also paying competitive wages and providing a workplace that offers competent managers (potentially another byproduct of good training), opportunities for advancement and recognition for outstanding work. Sure, you’ll still have instances where people leave you for other opportunities, and some of those people may even depart shortly after you invest in training them.
But not investing in improving the skillsets of your workforce is the biggest risk of all. Because if you don’t train your employees, you will pay the price through lower productivity and profits and higher accident rates and turnover. And it’ll be even worse when your competitors invest in training their employees.
Disclaimer: This article is provided for informational purposes only and should not be construed as legal advice.
Executive Director of Workforce Solutions