[Question] Penalty clause for termination or resignation during a probation period

[MikeM]

Hi this is my first time on The Forum, I apologize in advance for the length and or formatting of this post, but I require urgent assistance.

I recently relocated from Durban to Gauteng to work for an IT company, I commenced employment in April and this (August) is my 5th month there.

My employment at this company is subject to a 6 month probation period, but as yet I have had no performance reviews or any information or feedback on my chances of being kept permanent. The company is paying me quite a low salary for Johannesburg and it is becoming increasingly difficult to stay here, I have been offered other jobs to relocate back to Durban but here is where my predicament comes in.

The employment contract states that there is a penalty for leaving due to training costs encumbered by the employer. The said "training" is basically in-house formal sessions with permanently employed more experienced staff "training" the probation staff. Any other training is the employee being given access to documents to learn on your own time.

I will quote the probation clause and penalty clause from the contract, please excuse the length but I think it's required for context.

5. PROBATION

5.1. The employee’s appointment is subject to a period of 6 months’ probation.

5.2. Upon expiration of the probationary period, the employee’s appointment may be confirmed as a permanent employee or terminated.

5.3. In the event that the employee’s services are terminated, it will be done in accordance with the requirements of the Labour Relations Act of 1995.

10. TERMINATION OF EMPLOYMENT

10.11. This clause 10.11 up to clause 10.15.6 shall only apply in the instance of terminations of employment during the initial training period of the employee and one year thereafter, which period will be a period of 36 months.

10.12. The employer shall, in order to advance and promote the training and experience of the employee, provide for the employee to attend extensive in-house training.

10.13. The attendance at this training by the employee shall be considered to be in-occupation training of the employee.

10.14. It is recorded and agreed that the total value of the in-occupation training contemplated by this agreement, which includes time, expertise and actual disbursements expended by the employer, shall be a sum of R 663,000.00. The table below reflects the training costs over the three (3) years.

Year 1 [Mentoring and Training R 320 000] [Local Course R 13 000] [International Course] [College Accredited Course] [Year 1 Total R 333 000]
Year 2 [Mentoring and Training R 160 000] [Local Course R 14 000] [International Course R 35 000] [College Accredited Course] [Year 2 Total R 209 000]
Year 3 [Mentoring and Training R 96 000] [Local Course R 15 000] [International Course] [College Accredited Course R 10 000] [Year 3 Total R 121 000]
Total cost of Training: R 663 000.00

Note: The costs are calculated for 2015 at the base cost of 2015 and shall be escalated by CPI each year.


10.15. In exchange for the in-occupation training provided by the employer to the employee in terms of this agreement, the employee agrees and undertakes as follows:

10.15.1. the employee shall serve the employer for a minimum period of at least 3 (three) years;

10.15.2. in the event of the employment of the employee with the employer terminating for any cause or reason whatsoever, be it resignation, dismissal or any other form of termination of employment, prior to the expiry of the time period in terms of clause 10.15.1 above, then and in such event the employee shall immediately be obliged and required to pay the sum of (i) R 333,000.00 in the event of the employee serves the employer for a period of less than 1 (one) year completed service; (ii) R 542,000.00 in the event of the employee serves the employer for a period of less than 2 (two) years completed service; and (iii) R 633,000.00 in the event of the employee serves the employer for a period of less than 3 (three) years completed service, to the employer;

10.15.3. the sums set out in the above paragraph shall be immediately due, owing and payable by the employee to the employer with effect from the date of termination of the employment of the employee with the employer;

10.15.4. upon expiry of this 3 (three) year time limit in terms of this agreement, the employee’s liability to pay the said sums to the employer shall terminate and be expunged;

10.15.5. insofar as the payment by the employee to the employer in terms of this agreement may be considered or deemed to be a penalty clause as contemplated by law, the employee hereby and herewith acknowledges and agrees that such penalty clause is fair and reasonable, and that should the employee at any stage wish to allege the contrary, the employee shall have the onus to prove that such penalty clause is not fair and reasonable;

10.15.6. this agreement also serves as written consent by the employee in terms of the Basic Conditions of Employment Act to deduct the amount, or any part therefore, payable by the employee to the employer in terms of this agreement, from any final payment, salary or benefit due by the employer to the employee upon termination of employment by the employee with the employer.

Since I have only been with the company about 5 months out of my 6 months probation I would like to know that if the employer terminates my employment after the probation period or I resign before the probation period, am I liable for this penalty? The money stipulated in the repayment for Year 1 is about double what my annual cost to the company is and I have only had "in-house training". I have not been given the opportunity to attended local, international or college accredited courses.

Any assistance will be greatly appreciated!

[HR Solutions]

I have not read the whole thing, but yes you are responsible for the cost of training etc. It is exactly for this purpose that it is written into the contract and we have it as well. Money is spent on an employee not for them to up and leave.

[MikeM]

I have not read the whole thing, but yes you are responsible for the cost of training etc. It is exactly for this purpose that it is written into the contract and we have it as well. Money is spent on an employee not for them to up and leave.

I understand this yes. But so far, I am on probation and not a confirmed permanent employee of the company.

It's not about up and leaving, if they were to terminate my employment during or at the end of this probation period does that still make me liable?

This training provided has been all in-house, there is no certification or the like provided. It's employees training each other, no actual cost is encumbered to the company to provide this in-house training.

I have had similar penalty clauses at other companies, but nothing so exorbitant, and I haven't been terminated or resigned in that period.

[HR Solutions]

There is always a cost of training whether it is in-house or certificate !
Im afraid I fully agree with the employer on this one - this has happened to me and now I will tie employees up with contracts like this as well. I will not waste my time and money on any more training only to have the person leave without paying it back. Sorry
I spoke to the department of Labour and they agreed that a company is well within its rights to put those clauses in a contract so I think there is your answer.

[AndyD]

What did the training consist of exactly? A third of a million Rands penalty for the first year sounds punitive to me if it was anything less than full time specialised training for a recognised qualification.

10.15.5. insofar as the payment by the employee to the employer in terms of this agreement may be considered or deemed to be a penalty clause as contemplated by law, the employee hereby and herewith acknowledges and agrees that such penalty clause is fair and reasonable, and that should the employee at any stage wish to allege the contrary, the employee shall have the onus to prove that such penalty clause is not fair and reasonable;

Looks like they're fully aware it could be considered manipulative or punitive by the addition of this clause and are trying to cover their asses.

I guess you could maybe run the contract past the CCMA for an opinion on it's compatibility with the labour law. I'm not a legal expert but I was under the impression that a probationary period worked both ways with no strings attached for the employer and the employee. I would however suggest an independent legal opinion might be money well spent at this stage.

[HR Solutions]

probationary period worked both ways with no strings attached for the employer and the employee.

I used to agree with this, but it becomes costly for employers to train people then they leave, and then it happens again.

[MikeM]

Thank you for your prompt responses HR Solutions. I fully understand the point you are making and I value your input.

What did the training consist of exactly?

Hi AndyD thanks for your response.

During the first month I was left on my own with access to the companies system documentation to learn the system myself.

The rest has been designated sessions (of which there have been 4, since I have been at the company) with a more senior employee explaining a section of the companies system. The system is customized by employees for the companies clients and there are no formal qualifications or certifications derived from this in house training.

I can understand the companies requirement for such a clause as permanent staff are sent for highly specialized courses locally and internationally at company cost. However I am still on probation and cannot understand how I can be liable in the event they terminate me or I resign during this probationary period.

Clause 10.11 is sketchy on this

10.11. This clause 10.11 up to clause 10.15.6 shall only apply in the instance of terminations of employment during the initial training period of the employee and one year thereafter, which period will be a period of 36 months.

.

Whether the initial training period falls within the probation period or the period immediately after probation I don't know and this is not defined in the contract. I know a probation period is by law supposed to include employee training as Item 8(1)(e) of the Code of Good Practice: Dismissal (Under Schedule 8 to the Labour Relations Act, No. 66 of 1995) states that:

[a]n employer should give an employee reasonable evaluation, instruction, training, guidance or counselling in order to allow the employee to render a satisfactory service.

Does this not entitle me as a probation employee to this in-house training at company cost due to probation? And as yet, the company has not evaluated me or given me any feedback on my chances of permanent employment. I have sought other employment due to the fear of termination as all other probationary staff meet BBBEE requirements that I do not, and the chances of termination due to operational requirements may arise.

I would however suggest an independent legal opinion might be money well spent at this stage.

I believe you are correct in this regard, however affording legal fees on a low income is not going to be easy.

[HR Solutions]

There is a lawyer on this forum - Anthony Stern that can perhaps help you with some advice.

[MikeM]

There is a lawyer on this forum - Anthony Stern that can perhaps help you with some advice.

Thanks, I will try and contact Anthony for advice.
Thank you again HR Solutions for your speedy response.
I appreciate the time you have taken to read and respond to my questions.

People on this forum are quite helpful and friendly.

[AndyD]

During the first month I was left on my own with access to the companies system documentation to learn the system myself.

The rest has been designated sessions (of which there have been 4, since I have been at the company) with a more senior employee explaining a section of the companies system. The system is customized by employees for the companies clients and there are no formal qualifications or certifications derived from this in house training.

IMHO... and I hasten to add it's my personal opinion and not a legal opinion, this would constitute orientation rather than training. If the employees who are the 'trainers' don't have any qualification that defines them as a teacher and the info you're being taught is the internal systems of the company itself plus there's no qualification at the end of it that's industry recognised then this would be a basic requirement for the employer to do this for all employees and not something that can be given an arbitrary value of a third of a million Rands and used as leverage to stop employees leaving the company.

There's a few things that spring to mind, firstly does their 'mentoring and training' fulfill the actual definition or what mentoring and training actually is? Secondly, they've committed themselves to giving both mentoring and training, is what you've received both of them? Thirdly if you signed an employment contract as an employee on a long (6 month) probationary period would that same contract be valid if you are full time employed by the company after the probation or would that contract be invalid at that time and a new contract required because of the change in circumstances such as salary amount, no longer on probation or change in terms of employment, change in job description etc etc? Finally is that contract even legal given the value they've placed on what sounds like basic company orientation leaving the door open that it's being used as a threat to prevent you leaving when you're legally entitled to do so under national labour law.

I don't know any of the answers I'm afraid but this was my motivation for suggesting you need a legal opinion from someone who does.

[HR Solutions]

If staff get trained internally or externally it is time and cost money.

[HR Solutions]

If staff get trained internally or externally it is time and cost money.

And if Dep of labour have agreed with it then it's legal

[Citizen X]

Hi Mike,

This is my opinion on your matter.

The law of contract is largely regulated by the common law. One of the requirements for a valid contract is that the conclusion, object and purpose of the contract must be lawful. An unlawful contract cannot be enforced.

1. Firstly, the only way for this company to claim this money whatsoever is to sue out summons for breach of contract;
2. Secondly, unlawfulness is not just the dictionary meaning of unlawfulness, in this case, if it were me, upon receipt of the summons, I would enter a notice of intention to defend, and in my plea cite as my defence that those clauses are contrary to ‘Public Policy,’ and therefore unenforceable. The Constitution is the face of public policy,
3. You can also cite as a defence that the bargaining power between you and the employer was not the same, as you really needed the job and signed it without fully understanding it, therefore there was no consensus and no meeting of the minds. (consensus is one of the requirements for a valid contract); the implication is this, They will then still deduct from your provident fund and leave pay(this will naturally not cover the full amount). There is case law to support this.
4.The onus of proving that you have breached the contract is on the employer(the party claiming breach of contract);
5.You can also cite ‘misrepresentation,’ as a defence, which is a very strong defence. You can base this on the fact that you were not evaluated whatsoever during this period, and that the employer represented to you that you would be evaluated;
6.You can also state that those terms and conditions are completely unreasonable and therefore also contrary to public policy.
So, if I was in your position I would take the other job offer. I would also accept that whatever little amount of my provident fund and leave pay will be deducted. I will accept that they will sue out summons for breach of contract, but also that I will have several defences.
7. You say that the courses are 'college accredited,' are you sure??? Find out from the National Qualifications Framework, if not, You can also state as a defence that the 'training courses,' are not accredited by the NQF and therefore not recognized as official, formal training and argue that an employee has a right to be trained and not charged for what is an induction program. All qualifications and courses must be registered with the NQF. I doubt very much that these in-house programs even stand a chance of been registered with the NQF. Not even a University charges that much.

Many years ago, I was in a similar position, I accepted a position of branch manager for a business college. It had similar provisions about costs of training etc. Upon commencing employment, I found that I was doing largely administrative work and not the work of a manager. I left after one week. I received a summons, at that time I knew nothing whatsoever about the law. I was scared, I went to the Johannesburg magistrates court library and began researching what I should do, I entered a notice of intention to defend and a very poorly drafted plea. My defence was simple ‘exceptio non adimpleti contractus.’(if you don’t perform , I don’t have to perform). I also cited ‘misrepresentation,’ my explanation was simple but effective. I used this illustration in my very poorly drafted plea: if one is offered a position as a truck driver and arrives at work only to find that he is required to be a forklift driver, that is misrepresentation. Even though my plea was very poorly drafted and contrary to every court rule there is, they withdrew the matter completely.

So there are valid defences that you will have at your disposal.

I hope this helps.

[AndyD]

Thanks Vanash.

If staff get trained internally or externally it is time and cost money.

And if Dep of labour have agreed with it then it's legal

Yes, there's always a cost involved to the employer even with in-house training but the thing I'd take issue with is whether or not this even constitutes 'training' in the first place and secondly placing a value of a third of a million Rand on it and effectively holding an employee to ransom with it which given some of the terms in that contract, to me at least, reeks of malice and abuse of power. As for being legal, I'm not qualified to say but I have serious doubts in this particular case.

[HR Solutions]

Im a bit confused .... so are you saying that the Department of Labour might be operating illegally by giving this advise ?


PS ... Just by the way when I first implemented it on the contract and sat down with the employee and highlighted it - their answer to me was "Yes that is normal" !