Insight: Manufacturing apprenticeship contracts – six expensive traps for the unwary

Apprenticeships have become a popular way for manufacturing firms to train staff and, for those required to pay the Apprenticeship Levy, to get value for money from those contributions. Laura Willis, from law firm Irwin Mitchell, highlights how to get the basics right when employing apprentices and highlights the risks associated with getting it wrong.

According to Make UK’s own research, more than half of manufacturers intend to recruit at least one apprentice in the next 12 months and have increased their investment in training in the last two years. Two-thirds of manufacturers also believe that apprenticeships are the best way to bring in the green skills they need to operate more sustainably and achieve their net zero ambitions.

As manufacturers of all sizes continue to recognise the advantages of apprenticeships, here’s a reminder of six things employers need to look out for.

1 – What type of contract should you use?

When employing apprentices, you have two primary options for the employment contract: a modern English Apprenticeship Agreement (Apprenticeship Agreement if in Wales) regulated by the Apprenticeships, Skills, Children and Learning Act (2009) (ASCLA), or a common law apprenticeship agreement. It is important to follow the specific provisions outlined in the ASCLA to ensure compliance. Failing to issue a contract or meet the requirements can result in the relationship with the apprentice being determined by common law, which can introduce complexities into the employment arrangement.

2 – What rules apply to common-law apprenticeship agreements?

A common-law apprenticeship agreement is a distinct legal entity with its own rules. The primary purpose of this type of contract is to train the apprentice rather than provide work for the employer. As a result, the normal rules that apply to dismissing employees do not apply. Terminating a common-law apprenticeship before the end of the fixed term can only be done if the apprentice’s performance or conduct is so poor that they are essentially unteachable. Redundancy rules also differ, and a fundamental change in the character of the enterprise is required for a common-law apprentice to be made redundant. Further, common-law apprentices are not treated as apprentices under the National Minimum Wage (NMW) Regulations, so they must be paid at the rates that apply to their age. Failure to comply with NMW regulations can result in claims for underpaid wages and penalties.

3 – What happens if we terminate a common law apprenticeship before the end of the fixed term?

Terminating a common-law apprenticeship agreement early can have financial implications. If you terminate the agreement early, you may be required to pay damages for lost salary and benefits up to the contractual termination date. Additionally, you may be liable for enhanced damages due to the loss of the apprentice’s future career prospects.

4 – Can we simply move our common law apprentices onto English Apprenticeship Agreements?

Potentially, you can transition common law apprentices to ASCLA-compliant agreements. However, there are risks involved. Moving apprentices to ASCLA-compliant agreements may remove the enhanced protections provided by common law, resulting in a change in terms and conditions of employment. It is crucial to obtain the apprentice’s agreement to the changes and provide them with consideration, such as additional benefits or payment. If 20 or more employees are affected by the change, a formal collective consultation process may be required. Seeking advice before making changes can help minimise the risk of claims and significant damages.

5 – Can we end an ASCLA-compliant apprenticeship before the end of the fixed term?

Yes, you can end an ASCLA-compliant apprenticeship before the fixed term ends, but certain considerations must be considered. Employees under an English Apprenticeship Agreement are protected under the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations and are subject to unfair dismissal laws. If an apprentice has more than two years of service at the expiry date of the agreement, a fair process must be followed, considering suitable alternatives to dismissal, and following the ACAS Code. Termination of a fixed-term contract may also qualify as a redundancy situation, entitling the apprentice to redundancy pay.

6 – Can we include a clause in the contract to recover training costs from an apprentice if they don’t finish their training?

It’s important to consider the specific circumstances and legalities involved.

The Department for Education’s Apprenticeship Funding Rules clearly state that apprentices must not be asked to contribute financially to eligible training costs, regardless of when they leave their employment. This means that employers cannot directly recover costs from apprentices for their training.

However, it’s worth noting that there may be situations where an organisation can recover costs if they have used their own funds to pay for the training. This would typically involve expenses that are not covered by the apprenticeship levy or other forms of government funding.

An example of a case where a contractual clause requiring an apprentice to repay the employer’s full outlay for the apprenticeship was upheld is the case of Purcell v Winn Solicitors Ltd (2018). The Employment Tribunal deemed this clause enforceable because it did not ask the apprentice to contribute to the cost of training, and the repayment was considered a recovery of the company’s outlay.

Based on this case, it is our view that employers can include a cost recovery clause in the Apprenticeship Agreement for expenses not covered by the levy and solely funded by the organization. This can act as an incentive for apprentices to complete their apprenticeships. However, it is crucial to seek legal advice and review specific case law to ensure that any such clause is enforceable and complies with the relevant regulations.

Understanding the legal and contractual aspects of apprenticeships is crucial for employers. By following the appropriate regulations and seeking advice when needed, businesses can navigate the complexities of employing apprentices and create beneficial training opportunities for individuals.