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How a Stay or Pay Clause (Training Repayment Clause) Can Work in Canada 

An employer can agree with an employee that the employee will have to pay the employer back money wasted on training the employee (wages, training expenses, etc.) if the employee quits or gets fired early. This kind of employee repayment agreement, which is usually contained in a clause in an employment contract, is often called a “Stay or Pay” clause or a “TRAP” (training repayment agreement provision). In the United States, these kinds of agreements are becoming more common, but they are still rare in Canada.

In most provinces, Stay or Pay, and TRAP clauses are more or less legal. However, for a Stay or Pay or TRAP clause to be enforceable, generally across Canada, it must follow a narrow set of guidelines:

The Legal Test For Employee Repayment Clauses

For example, to be enforceable in Ontario, employee repayment, Stay or Pay or TRAP clauses must be crafted like this:

  1. The Employee must agree in writing to repay bonafide training expenses. The agreement should be unambiguous. 
  2. The agreement should refer to a specific amount of damages or a formula from which a specific amount may be calculated.
  3. The damages should be for lost training costs, not business costs that would be incurred anyway. The training should be beneficial to the employee, not just the employer. In other words, the training should be transferable. In this way, it is said that the agreement must not be commercially immoral or “unconscionable”.
  4. The damages stipulated in the agreement must not be a penalty. Instead, they must be a reasonable pre-estimate of the actual damages and should be decreased based on the length of employment; they should not be excessive. 
  5. While courts would likely tend to favour a TRAP that contemplates damages if the employee leaves to work for a competitor over a blanket TARP for all kinds of terminations, the agreement must not prevent the Employee from working for a competitor. 
  6. That there must not be inequality of bargaining power, and that the employee should, of course, be made aware of the repayment agreement. The opportunity to seek independent legal advice would be beneficial, although not precisely required. 

Real Life Examples: Employment Training Repayment

From the case law, courts are more likely to enforce these kind of training repayment agreements where the employer is willing to take an employee on before that employee is licensed to do the kind of work the employer is in the business of. For example, an individual at a real estate firm without a real estate license or a pilot without a license to fly commercially. In this way, the courts want to encourage employers to take risks by training new employees, especially when specialized training is required. The courts want to help employers mitigate the hiring risks of these types of employees by allowing them to recoup lost monies if the employee leaves the company as soon as they receive their license. In this way, I would suggest all employers who hire highly specialized, regulatory-intensive employees who have not yet completed their training or licensing should consider utilizing such Stay or Pay/TRAP agreements to prevent those employees from basically running off to greener pastures when they finally acquire such certifications. 

On the other hand, it’s hard to see a court enforcing one of these Stay or Pay/TRAP agreements on regular employees who have no special training or licensing requirements to achieve over a lengthy period. For example, I could not see a fast food restaurant enforcing one of these on a manager. Likewise, employees in these situations would be very reluctant to join such employers, so it’s a lose-lose situation.