The issues around outstanding employment bonds

01:11, Mar 31 2014
Mary-Jane Thomas
Southland Times Work to Rule employment law columnist Mary-Jane Thomas

Mr S was employed as a flight instructor for about a year by CTC Aviation Training New Zealand Limited (CTC).

CTC said that when Mr S left his employment he owed $5735 in outstanding training and relocation bond amounts. The former employer sought an order from the authority for payment in full by Mr S of the outstanding bond amount.

Mr S disputed the amounts claimed.

Mr S was offered employment and relocated from Perth to Hamilton. He signed two training bonds after he started his employment and one relocation bond when he signed his employment agreement.

The training bonds were headed "agreement for refund of training and examination costs" and stated that the purpose was to allow the employee to undertake agreed training and examination that was of direct benefit to the company and the employee.

The company was prepared to fund the cost of training and examination "subject to the employee's commitment to refund to the company a portion of the costs in the event of his employment terminating for any reason within a given time frame".


Now each bond contained a termination of employment clause that provided if Mr S's employment ceased for any reason other than redundancy he would repay a proportion of the training bond according to a set repayment schedule.

The schedule provided for a pro rata basis repayment depending on the length of employment following the start of the refund period.

So, for example, if Mr S had resigned within one month of him completing the training course he would have been liable to repay 100 per cent of the training bond. If he had resigned between 10 and 11 months he would have been liable for only 9 per cent of the amount of the training bond.

There were two bonds. One was for the training cost and examination fees in respect of getting an instructor certificate.

The amount of the bond was $5600 and was for 11 months. The other bond was for a specific training course, the refund period was 13 months and the amount of the training bond was $6500.

Each bond contained a declaration that the employee had "read, understood and accepted the conditions set out in the agreement".

Mr S undertook and completed both training courses. For a whole lot of reasons that are not that important for the purposes of this article, Mr S resigned his employment in March 2013 on one month's notice. His employment agreement required him to give three months notice of termination, but he requested to be released without penalty after one month's notice so that he could take up a position elsewhere. The employer agreed to this and waived the financial penalty for the reduced notice period contained in his IEA.

Mr S was asked to repay the pro rata amounts of the two bonds. This was $2712 for the relocation bond (full amount had been $5000) and $1008 and $2015 respectively for the two training bonds.

Firstly, was the relocation agreement valid and was Mr S bound by it? When Mr S signed his agreement to the employer's offer of employment he accepted that if he did not complete the two years of employment he would be required to pay back on a pro rata basis relocation expenses met by the employer. Mr S's argument was that CTC misrepresented the position he applied for and relying upon the Contractual Remedies Act argued that the contract was not binding and enforceable because of that misrepresentation.

The authority found there was no evidence before it to support the allegation that the employer had misrepresented the nature of his employment and therefore the relocation bond was due and payable.

In relation to the training bonds, Mr S had a different argument. One was that what they were requiring him to pay back was not the actual and reasonable costs of the training. In other words he challenged that in fact the employer had spent this much on the training courses he had completed and then argued the employer should not be unjustly enriched i.e. the employer should not be paid back money from Mr S that the employer did not spend (the authority rejected that argument).

The third argument is an argument that I have had to give advice on. He argued that CTC was barred by Section 12A of the Wages Protection Act 1983 from recovering the outstanding bond amounts. That section provides "no employer shall seek or receive any premium in respect of the employment of any person, whether the premium is sought or received from the person employed or proposed to be employed or from any other person".

The Employment Court has described a premium "in the normal understanding of the term" as importing "some consideration paid or demanded as the price of a contract". Historically the legislation was passed to prevent the exploitation of young women that are entering hairdressing. It had been common for premiums to be paid by the parents for their daughters' tuition when no tuition was provided.

The ERA did not accept the argument.

The ERA concluded that CTC incurred the cost of providing the training including the payment of Mr S's salary while he was non-productive during training, instructor's time and operational cost. Had he remained in its employment for the length of the bond periods he would not have been required to contribute at all. The authority found the training bonds entered into could not be equated to a premium on employment. Of note was the training benefit that Mr S gained while CTC received no direct financial gain from it.

The only gain for CTC was the commitment by Mr S to remain with CTC for the bonded period during which it would have been able to benefit from his enhanced skills.

* Mary-Jane Thomas is a partner at Preston Russell Law. E-mail her at

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