It is well known that the social care sector is reliant on migrant workers - without them, the sector may collapse. Despite this, the Guardian has reported on data from the Royal College of Nurses showing a six-fold increase in reports of migrant social care workers trapped in exploitative employment contracts. Reports of harsh repayment schemes for immigration costs triggered by unfair dismissals are worth looking at in more detail due to their frequency. 

Key learning points 

• Are repayment clauses ever fair to recoup immigration costs?
• What effect could seeking to recoup immigration costs have on an employer with a sponsor licence?

Repayment clauses

Immigration costs can be steep but necessary for recruitment purposes. It would be understandable for an employer to seek to recoup some of those costs in the event of an employment relationship breakdown before they have been able to benefit from the employee. Repayment clauses are often found in employment contracts where training or upskilling has been financed by an employer - so they are not in themselves necessarily exploitative. The key to these clauses is whether they are, in practice, penalty clauses. Penalty clauses are not enforceable.

A repayment clause becomes a penalty clause if the sum to be paid back is ‘extravagant and unconscionable’ when compared to the loss suffered by the party enforcing the clause. A penalty clause is not a pound-for-pound repayment for the loss but rather an inflated amount penalising the worker for the end of the employment relationship.

Tips for drafting fair repayment clauses

• Ensure that any repayment amount has been calculated and reflects the exact loss. Requiring payment of an arbitrary sum with no detail as to what cost that represents is unlikely to be fair or enforceable. 
• Ensure that there is some tapering of the payment so that the amount to be repaid is less for each year of employment - acknowledging the financial contribution of the worker during their employment. Ensure that the repayment terms are reasonable and do not lock the worker or employee into the role for an unnecessarily long time.
• Ensure that there are clear terms for when the repayment clause is triggered. From the Guardian report, it appears that unscrupulous employers were creating false dismissals to trigger the repayment of immigration fees. Clear guidance will help avoid those scenarios.
• Be aware of National Minimum Wage (NMW) concerns when deducting money from a worker’s wages. Any deductions must be taken into account when calculating the NMW and should the hourly rate dip beneath the NMW rate, you may be at risk of an HMRC investigation. 

Sponsor licence impact

Employers may not be aware that seeking to recoup certain immigration costs is specifically prohibited according to UKVI guidance, and that any recouped costs may be refunded by the Home Office.

In particular, if a sponsoring employer has recouped, or attempted to recoup, some or all of the Immigration Skills Charge from a worker, this is listed as a circumstance in which the employer’s sponsor licence will normally be revoked.

Therefore, having a clause in the contract which sets out that costs including the Immigration Skills Charge could be recouped is not advisable.

In any event, there are many circumstances in which most of the Immigration Skills Charge can be refunded by the Home Office, so such a clause should be unnecessary.

It is worth noting that suspensions and revocations of sponsor licences have dramatically increased in recent months.

• Statistical data from UKVI shows that between April and June 2024 (Q2), 524 skilled worker sponsor licences were suspended, and 499 skilled worker sponsor licences were revoked.  This is the highest number of suspended and revoked licences within a three-month period for over ten years (although it has to be acknowledged that the number of employers with licences has also increased during this period). 
• The number of revocations in Q2 of 2024 is more than double what it was in Q1 of 2024 (January to March).

These actions show the capacity of the Home Office to take enforcement action. Given the severe impact that suspension or revocation of sponsorship licences can have on an employer, it’s essential that any repayment clauses do not fall the wrong side of UKVI requirements and so prompt any Home Office actions or investigation. 

For more information

We would advise you to seek specific advice on any repayment clause you wish to include in your contracts to ensure that they are not deemed penalty clauses or prohibited by UKVI. If you would like help drafting these or reviewing what you already have, contact Hannah Bollard. For any specific immigration queries including sponsor licence obligations, please contact Hazel Findlay.