Graduation day at Cambridge university
Graduation day at Cambridge university © Alamy

When Katie O’Flynn was looking for her first job after graduating, the offer from Sparta Global, an IT contractor, seemed ideal. The company undertook to train Ms O’Flynn as a software tester. It would then place her with clients who wanted her skills.

Yet, nine months after she took up the post in January 2017, Ms O’Flynn faced a predicament confronting an increasing number of workers moving on from their first graduate jobs. Having found software testing frustrating and dull, Ms O’Flynn told Sparta she was leaving to study for a masters degree. Sparta first withheld her last month’s pay to cover some of her training costs. Then, after she contacted an employment tribunal about potentially bringing a case to try to recover the money, Sparta confronted her with a bill for a further £16,000 in training costs they said she was still obliged to refund.

Ms O’Flynn’s experience reflects the growing popularity of “exit-fee” contracts that seek to tie graduate trainees to employers for a set period, usually two but sometimes as many as four years. Employers operating such schemes require graduates to sign contracts that stipulate that those who depart during the set period have to reimburse training costs — sometimes up to about £20,000 — although at some companies the cost is reduced for the time the employee has already worked. Sparta demanded that Ms O’Flynn pay a partially amortised portion of what they said was £21,600 in training costs — for a three-month course with 30 other people.

“They came down very hard on me,” Ms O’Flynn says.

Stories such as Ms O’Flynn’s have made exit-fee contracts the latest of a series of controversies over employment practices in the UK. Campaigners, including Tanya de Grunwald, founder of Graduate Fog, a careers website for recent graduates, believe the contracts are unfairly exploitative.

Ms de Grunwald says that in recent months exit-fee practices have generated more complaints from her site’s users than any other subject, and graduates have continued to receive warnings and invoices from employers throughout the Covid-19 crisis.

“I’m really, really concerned for their mental welfare,” she says of the vulnerable young graduates who contact her. “This just doesn’t feel right.” 

Tanya de Grunwald says exit fee contracts were the biggest source of complaints from her site’s users
Tanya de Grunwald says exit fee contracts were the biggest source of complaints from her site’s users © Jas Lehal

However, employers that use the contracts defend them as a legitimate way to fund training they might otherwise not be able to offer.

Sparta Global says it offers a high-quality grounding in IT. “Sparta’s bespoke programme . . . provides trainees with weeks of dedicated lab-based practical training, created and run by industry experts without any upfront cost,” the company says.

The core question is whether the fees are proportionate. Jolyon Maugham, the public-law barrister who founded the campaigning Good Law Project, says there is little doubt the law would let an employer seek reimbursement if a high-flying executive left after it had funded his MBA.

“What the law says is that employers can, if acting reasonably, protect a legitimate interest,” Mr Maugham says.

Mr Maugham contrasts the case of the MBA executive with the experience of Ms O’Flynn and other exit-fee trainees, who typically receive a number of weeks’ classroom training priced, in most cases, at more than twice the cost of a year’s undergraduate university education. Such demands breach the principle that demands must be proportionate, according to Mr Maugham.

“The qualitative difference between those two worlds will be immediately apparent to you,” he says.

Mr Maugham says graduates take the risk of signing up to the contracts believing they will receive far better training than is sometimes delivered. He expects, based on previous legal decisions, that the courts would side with the graduates if presented with a clear argument that the contracts were unfair to the employees. However, he is seeking graduates to bring a test case that will make a definitive ruling.

Employers challenged on their use of the contracts have mostly forgiven the debt but settled cases out of court, without setting a clear legal precedent, while graduates accept such settlements because, if they took the case to a hearing in a county court and lost, they might have to pay both the exit fee and both sides’ legal costs. 

“We think that these clauses are clearly unlawful,” Mr Maugham says. “But I cannot say that I’m absolutely certain that that’s so.”

Sparta insists most trainees are happy, despite Ms O’Flynn’s frustration. “Sparta is immensely proud that 91 per cent of its graduates remain in the employment of Sparta or their placement clients after completing their two-year programme,” the company says.

A graduate who worked for FDM Group, a listed IT developer, says that of his six weeks’ training, one week was devoted to coaching in giving presentations, while another focused on using the Excel spreadsheet system. The software training was “a very basic foundation in programming”, according to the person, who asked not to be named.

Mr Maugham estimates that, based on FDM’s annual report, the company is the biggest single user of exit-fee contracts, with 3,000 staff on the agreements at any given time.

“A year at university cost me £9,000,” the graduate says. “How does a six-week IT course cost me £20,000?”

FDM Group says that it provides “high-quality, classroom-based training”.

“Our entire programme of courses was independently reviewed within the last 12 months to ensure full value for our people, in line with industry standards,” the company says.

A forthcoming case may clarify some of the issues. Michael Bennett and Charles Day, both former employees of Geeks Ltd, a software developer, have brought a case before South London Employment Tribunal arguing that the company was unreasonable to withhold their last month’s pay when they left during their training periods. The pay was withheld, according to Geeks Ltd, to cover part of the cost of training the two men, which the company puts at £15,800 each. The Good Law Project is backing the men’s action, which was due to be heard on April 28 and 29 but has been postponed until November because of coronavirus restrictions.

Mr Bennett says he left after managers failed to respond to his satisfaction to a letter setting out concerns from several trainees. “There was a group letter setting out several reasons why they believed the training was inadequate, both in terms of the number of contact hours, the actual quality of the training and then the cost that they were attributing to it,” he says.

Paymon Khamooshi, Geeks Ltd’s technology director, insists the training was to a high standard. He says the company recently won a legal action requiring one former trainee to pay back training costs.

He also denies his company’s arrangement counts as an “exit fee”. Geeks Ltd either recovers training costs by writing them off each month as an employee works for Geeks or through seeking repayment if he or she leaves, according to Mr Khamooshi. “The training details and costs are calculated and agreed upon up front,” he says.

For many former trainees, meanwhile, the legal picture remains cloudy.

Ms O’Flynn, who is currently studying for a Physics PhD at King’s College London, decided against pursuing any legal action but was later offered of an out-of-court settlement. She says Sparta offered to reimburse the withheld salary and issue a declaration that she owed them no more money. But she would have had to drop any legal action.

She says she was keener to ensure the company abandoned exit fees than to solve her own problems. As a result, like many other former trainees, she faces the uncertainty of potential new demands that she repay the costs while not being currently pursued for them.

Ms O'Flynn says she wants the company to say it will “never do it again”. “I turned down the offer,” she says. “I wouldn’t have done that if I didn’t think there was an injustice.”

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