The development of a sustainable training strategy is often undermined by financial considerations and workforce migration. These concerns have been addressed in recent times through the introduction of training bonds.
A training bond is a contract between an employer and an employee whereby the former undertakes to pay a stipulated cost for the training of the latter with the understanding that the latter will either remain in employment for a specified minimum period or refund the cost of the training upon resignation. The bond is a measure that prevents an employee from resigning after acquiring new skills or certifications financed by their employer.
This article provides practical insights into the operation and drafting of training bonds in Nigeria. It reviews court decisions with a view to clarifying the legal considerations surrounding training bonds, for the benefit of both the employer and the employee.
Training bonds as form of restraint of trade
A restraint of trade is any agreement which limits or restricts the professional activities of an individual or company. Under Nigerian law, restraint of trade is void and unenforceable unless it can be shown to be reasonable.
The National Industrial Court of Nigeria (NICN) has made conflicting decisions on whether a training bond contract qualifies as a restraint of trade. For instance, in Overland Airways Limited v Oladeji Afolayan & Anor, (1) the NICN rejected the defendants' arguments that the training bonds in question were contracts in restraint of trade:
[…] the objective of a contract in restraint of trade is to protect an employer's confidential information acquired by an ex-employee from being used against the employer. On the other hand, a training bond seeks to compel a current employee whose training has been sponsored by the employer to work for an agreed duration so that the employer could derive the benefits of its investment on the employee.
Therefore, the bond was valid and enforceable without the need to consider its reasonableness or other components of the contract.
However, in Overland Airways Limited v Captain Raymond Jam, (2) the same issue arose as to whether a training bond qualifies as a contract in restraint of trade, in which case the training bond will be prima facie unenforceable unless it is shown to be reasonable. The NICN took the view that a training bond is a contract in restraint of trade. According to the Court, the training bonds in question were "not enforceable between the parties being in restraint of trade unless they are shown to be reasonable". (3)
All other subsequent decisions of the NICN have so far been consistent with its position in Overland Airways Limited v Captain Raymond Jam that a training bond constitutes a restraint of trade. (4)
When are training bonds enforceable?
As shown above, judicial decisions suggest that training bonds are only enforceable by law if they are shown to be reasonable. In other words, a training bond must, in addition to meeting other essential components of a contract, pass the test of reasonableness before it is implemented.
The reasonableness or otherwise of a training contract is determined on a case-by-case basis but a court will generally consider the restrictive or exploitative nature of a covenant. For instance, in Balogun & Ors v Federal University of Technology & Anor, the Court held that the reasonableness or otherwise of a training bond is dependent on the period of work required after training and the sum to be paid by the employee in the event of breach of contract. (5)
Thus, the period an employee is required to remain in employment after being trained by the employer is crucial to the question of reasonableness. In Overland Airways Limited v Captain Raymond Jam (above), the Court noted that a period of one to three years may be a reasonable time to "bond" an employee, but a period of five years is unreasonable.
Similarly, in Overland Airways Limited v Engr. Shehu Sekula & Ors, (6) the Court declared a five-year training bond unreasonable. It is not particularly clear how the Court may treat a training bond of four years. However, based on current judicial trends, it is likely that a four-year training bond may also be held to be unreasonable.
It should be noted that an employer who terminates an employment contract cannot sue to enforce the training bond. In Overland Airways Limited v Oladeji Afolayan & Anor (above), the Court held that the termination of employment discharges the employee from every obligation in the training bond. In this case, the Court held that the employer had terminated the first defendant's employment when the employer refused to pay his salary, thus absolving the defendant of every obligation in the training bond. However, it should be considered that where termination is a result of the employee's wilful or gross misconduct, an employer should be entitled to sue to recover the cost of training.
Notably, it is the Court that determines the amount to be recovered from an employee in breach of their training bond. In general, an employer is entitled to a pro-rated refund of the training cost. In this regard, the Court typically considers the total cost of the training and the period served by the employee before the breach. Again, in calculating the amount due to the employer, the Court may look to the training bond for guidance, but is not bound by any stipulations. (7) This is because it is likely that the cost of training to be repaid by the employee in the event of a breach may have been exaggerated.
With regard to enforceability, an action cannot be sustained against the subsequent employer of an employee who exited in breach of a previous training bond; attempts have so far not been successful. However, in the case of Overland Airways Limited v Engr. Shehu Sekula & Ors (above), the NICN suggested that an action may lie against a subsequent employer if evidence is adduced to show that the new employer induced the employee to breach the training bond.
Practical considerations
Below are some practical considerations on how to ensure the reasonableness of training bonds.
Details of training and investment should be stated
A training bond must contain details of the training and the investment relevant to the employee. A contract that simply states that an employee is bonded for an unspecified period is void and unenforceable.
In ATB Techsoft Solutions Limited v Ake, (8) the bond in question contained the following clause:
[t]he Employee hereby agrees that her employment will be bonded for a period of 3 years from February 2018 to February 2021. The Employee understands and agree[s] that this bond is to ensure stability in [the] Employer's business process.
The Court voided the bond as unreasonable and found that there was no evidence to prove the investment made in the defendant to justify the restriction. The Court equally impugned the bond on the grounds that it was made to ensure the stability of the employer's business rather than to protect the investment made in the defendant.
Salary deductions
The law recognises the freedom of the parties to decide their terms in any contract. Nothing prevents the employer from deducting an agreed amount from the employee's salary until the amount spent on the training is paid in full.
A training bond that permits the employer to recoup the investment from the monthly salary of an employee is valid and enforceable. (9)
Timeframe for executing training bond
The appropriate time to execute a training bond is before the training commences. A training bond signed after training has taken place may not be enforceable based on previous judicial decisions.
In Overland Airways Limited v Captain Raymond Jam (above), the Court stated: "If the agreement is signed after the training is completed, it may not be enforceable because at the time the contract was signed nothing of value was exchanged."
Resigning during pendency of training bond
There are two conflicting views on an employee's right to resign without restraint. The first maintains that an employee has an absolute right to resign by issuing the appropriate notice, which becomes effective once received by the employer. (10) This view further posits that the employer is not permitted by law to reject an employee's resignation for any reason, as such an attempt would amount to forced labour. (11) This implies that while affirming the employee's unconditional right to resign at any time, all entitlements owed to the employer including cost of training and other financial commitments automatically become simple debts, which will immediately become due and payable upon resignation. The underlying implication is that the non-payment of the stipulated amount in a training bond will not constitute a valid ground to reject a resignation.
On the other hand, there is the consideration that an employee's right to resign is subject to the fulfilment of the terms of their contract. This reasoning implies that the employee has a conditional right to resign that can be successfully challenged by an aggrieved employer where the employee is in breach of contract or is yet to satisfy debts resulting from training bonds. The NICN adopted this position in Bakare v Lagos State University, (12) rejecting the claimant's attempt to resign from the defendant's employment and stating as follows:
The claimant gave notice of her resignation on the 25th February 2016 to take effect from the 1st of March 2016. This is 4 days' notice. The notice to terminate the employment between the parties was clearly in violation of the condition of service that regulate[s] the employment between the parties. It was therefore right for the defendant to have rejected the resignation of the claimant.
The above decision aligns with other radical views of the Court where an employee's resignation was successfully impeached on grounds of non-conformity with the terms of employment.
Despite the above, it should be remembered that an employee has an absolute right to resign at any time, as reflected in international best labour practices and the constitutional safeguards against forced labour enshrined in Section 34(1)(c) of the Constitution of the Federal Republic of Nigeria 1999 (as amended). The employer's remedies lie in the implementation of appropriate actions to enforce the payment of the monies owed by the employee.
Comment
Based on the issues contemplated above, employers should consider three main points when drafting training bond contracts:
For further information on this topic please contact Michael Iwuoha or Isdore Ozuo at Aluko & Oyebode by telephone (+234 1 462 8360 71) or email ( [email protected] or [email protected] ). The Aluko & Oyebode website can be accessed at www.aluko-oyebode.com.
Endnotes
(1) Unreported decision in NICN/LA/19/2011: Overland Airways Limited v Oladeji Afolayan & Anor per the Honourable Justice BA Adejumo, delivered on 2 May 2014.
(2) Unreported decision in NICN/LA/597/2012: Overland Airways Limited v Captain Raymond Jam per the Honourable Justice BB Kanyip, delivered on 15 April 2015.
(3) Notably, the attention of the Court was not drawn to its earlier decision wherein a contract in restraint of trade was distinguished from a training bond.
(4) For instance, see the unreported decision in NICN/LA/599/2018: Overland Airways Limited v Engr. Shehu Sekula & Ors, delivered on 12 April 2021.
(5) Unreported decision in NICN/AK/49/2015: Balogun & Ors v Federal University of Technology & Anor per the Honourable Justice OO Oyewuni, delivered on 15 November 2018.
(6) Unreported decision in NICN/LA/599/2018: Overland Airways Limited v Engr. Shehu Sekula & Ors per the Honourable Justice Ikechi Gerald Nweneka, delivered on 12 April 2021.
(7) As in Overland Airways Limited v Captain Raymond Jam (above).
(8) Unreported decision in NICN/LA/100/2020: ATB Techsoft Solutions Limited v Eniola Grace Ake per the Honourable Justice Ikechi Gerald Nweneka, delivered on 16 March 2021.
(9) Unreported decision in NICN/ABJ/340/2018: Capt Udumeberaye Umusu v Azikel Air Limited & Ors per the Honourable Justice KD Damulak, delivered on 26 February 2020.
(10) See Adefemi v Abegunde [2004] 15 NWLR (Pt. 895) 1 CA and Yesufu v Gov. Edo State [2001] 13 NWLR (Pt. 731) 517 SC.
(11) See Taduggoronno v Gotom [2002] 4 NWLR (Pt. 757) 453 CA.
(12) Unreported decision of the National Industrial Court in NICN/LA/115/2018 per the Honourable Justice IJ Essien, delivered on 29 September 2020.
