Avoiding Costly

Apprenticeship Pitfalls

Apprenticeships are proving to be increasingly popular with businesses who want to train their staff on the job while getting value for money through Apprenticeship Service Account levy contributions. Higher apprenticeships in particular have shown year-on-year growth of over 6%.

Over half a million people were registered on an apprenticeship between August 2022 and April 2023, up 1.6% on the previous year, according to government statistics. Almost 70% of those starting during the last academic year were funded by the apprenticeship levy.

But when considering employing an apprentice, there are some basics that businesses must get right if they’re to avoid some of the often overlooked pitfalls of the schemes.

What are the challenges for businesses?

Ensuring the right contract type: apprentices in the UK who are working within a relevant framework should be employed under a modern English Apprenticeship Agreement (or an Apprenticeship Agreement in Wales) governed by the Apprenticeships, Skills, Children and Learning Act (2009) (ASCLA). Failing this, they will be employed by default under a common law apprenticeship agreement. The choice impacts the legal position governing the employment relationship.
Common law apprenticeship agreement rules: common law apprenticeships are distinct legal entities focused on training rather than providing work. Terminating common-law apprenticeships is challenging, as it requires demonstrating that the apprentice is “essentially unteachable”, which is an exceptionally high threshold. In addition, redundancies follow strict criteria and can only occur with a “fundamental change” in the employer’s enterprise.
Terminating common law apprenticeships: terminating a common-law apprenticeship early can result in significant liabilities, including lost salary and enhanced damages for future career prospects.
National Minimum Wage (NMW) regulations also apply, and the lower rate can only legally be applied to apprentices employed under ASCLA, and underpaying can lead to penalties and claims.

ASCLA-compliance agreements can be managed and terminated in the same way as ‘normal’ contracts of employment, without giving rise to enhanced damages.
Transitioning to ASCLA-compliant agreements: switching common law apprentices to ASCLA-compliant agreements can reduce legal protections for apprentices – but isn’t necessarily easy. This may necessitate their consent via consultation and offering additional consideration. Collective consultation is required if 20 or more employees are affected.
Terminating ASCLA-compliant apprenticeships: ending ASCLA-compliant apprenticeships involves following Fixed-Term Employees Regulations, which protect these employees. A fair process, considering alternatives, and following ACAS Code are essential to avoid unfair dismissal claims. Redundancy pay may apply in certain situations.
Recovering training costs: contracts for ordinary employees may include clauses to recover training costs if the employee leaves. However, different rules apply to apprentices. The Department for Education’s Apprenticeship Funding Rules prohibit apprentices from contributing financially to “eligible” training costs. Still, it’s possible to recover costs if using an organisation’s funds for “ineligible” activities. A case – Purcell v Winn Solicitors Ltd – upheld a repayment clause for apprentices who leave before completing their training, differentiating it from requiring apprentices to contribute to training costs.

What actions should your business take?

Conduct an audit of your apprenticeship agreement and highlight areas of risk
Ensure your apprenticeship agreements are legally compliant
Introduce new contacts for apprentices working under common law contracts – but take advice first if you want to change the contracts of any existing apprentices.

Expert opinion

Businesses should not underestimate the importance of getting the right contracts in place when it comes to taking on apprentices. With the growing number of apprentices (especially within the education, manufacturing, property and consumer sectors) comes an increased risk of inadvertently employing apprentices on a common law apprenticeship agreement, which are notoriously hard to terminate. Businesses that get this wrong face huge financial penalties, including having to pay enhanced damages to the apprentice, and other, significant penalties arising from failure to pay NMW at the appropriate rates.

Businesses are starting to wake up to the risks and we’ve seen a huge increase in those asking for advice over the past couple of years. We’ve managed to help many of these to limit their legal exposure to claims and the financial penalties that accompany these.

But many are still unaware that the contracts they may have purchased off the shelf, or have used for years, don’t comply with the statutory framework under ASCLA and pose significant risks to their business. These problems often only come to light if an apprentice is proving to be troublesome and they want to terminate their employment early.

Laura Willis

Associate