Funding continuing education and protecting yourself. An explanation of the repayment clause
Employees are seeking continuing education and professional development. They also provide added value for companies. The fact is: Employees with higher qualifications are an asset to the employer, which is why employers are often willing to pay for their employees’ continuing education courses. However, this process carries a risk that small and medium-sized businesses in particular cannot always bear. This is because if employees who have undergone training leave the company shortly after completing their training, the employer incurs a financial loss. Your tax advisor in Düsseldorf and Oberhausen explains how you can best establish repayment agreements with your employees to protect yourself financially.
The Benefits of Repayment Clauses
In general, companies benefit from well-trained employees. These employees are up to date with the latest knowledge and can handle all the challenges of their jobs. The company remains competitive. However, to protect themselves financially, business owners are advised to draft a repayment agreement. Through this agreement, the employee commits to repaying the training costs if they leave the company within a certain period after completing the training.
Scope of a repayment clause
First, it is important to clarify what repayment clauses actually are and what benefits they cover. The contractual agreement protects the employer by placing an obligation on the employee. Repayment clauses are frequently agreed upon for bonuses, vacation pay, and relocation costs. In particular, they protect the employer in the case of education, training, and continuing education if these are financed by the company. In principle, repayment clauses can only be agreed upon if the benefit is a voluntary one provided by the employer.
The financial benefits must be repaid if the employee terminates the employment relationship or if it ceases to exist for another reason. However, the employer must be cautious with regard to certain groups of people, as there are specific legal prohibitions to observe. A repayment clause is not possible in these cases. This applies to agreements with trainees, union members, and occupational safety specialists.
Conditions for the Validity of the Repayment Clause
Repayment clauses are agreed upon in employment contracts and are generally permitted based on the principle of freedom of contract, provided that the training enhances the employee’s employment prospects. However, they are not effective without restriction, as case law holds that not all costs for training and continuing education can be reclaimed from the employee. The following criteria must be observed by those sharing the costs.
The training constitutes a monetary benefit for the employee
If the training enables the employee to secure better job prospects or results in higher compensation, it meets the first requirement for a repayment clause. If no usable benefit arises, no repayment obligation can be established. This is the case with training measures intended to refresh the employee’s knowledge or skills but which do not provide them with any personally usable benefit. In this case, there is also no eligible, realizable benefit for them.
Review of General Terms and Conditions
Repayment clauses in employment contracts are common in companies and, as contractual agreements, are subject to the review of standard terms and conditions. When drafting such clauses, it must be ensured that the provisions do not unreasonably disadvantage the employee in question. Furthermore, the clauses must be transparent. This means that the repayment clause must clearly state what repayment costs the employee may incur. The courts assess the reasonableness of a clause based on three criteria:
1. The repayment clause applies only in specific cases
- The triggering reasons for the repayment agreement must be listed clearly and comprehensibly. Excluded from the employee’s repayment obligation are events that are beyond the employee’s control or decision-making authority. Specifically, the following two cases should be identified as subject to repayment:
- if the employer terminates the employment contract for justifiable reasons related to the employee’s conduct
- the employee resigns for reasons for which the employer is not responsible
- The commitment period is a specific duration
The repayment clause must specify the date up to which the employee is obligated to repay the costs upon termination of the employment relationship. This period is referred to as the commitment period. The period may only be of a reasonable length. In most cases, the extent of the employee’s benefit should be determined by the duration of the training. Retention periods can be established based on past rulings by the Federal Labor Court:
- Up to one month in duration: six-month commitment
- Duration of up to two months: one-year commitment
- Duration of three to four months: two-year commitment
- Duration of six to twelve months: three-year commitment
- Duration of more than two years: five-year commitment
Determining the repayment amount
The benefits to be reimbursed must be within the bounds of what is possible and reasonable. The wording regarding the amount of the financial benefits to be reimbursed must be transparent. Individual cost factors and items must be itemized.
Establish the repayment obligation at the appropriate time
With an eye toward transparency, the repayment agreement must be agreed upon before the start of the training program. Repayment provisions drafted retroactively are not valid.
Repayment clauses do not take effect
The repayment clause may become invalid. This occurs if it does not meet legal requirements. As a result, the employee is not obligated to make the repayment.
Tax Consulting in Düsseldorf and Oberhausen
To help you avoid such a situation, we are here for you as tax advisors in Düsseldorf and Oberhausen. We are happy to assist you with advice and support in drafting a repayment clause. If you have any questions on this topic, please do not hesitate to contact us.
