Employee Based Training and Bonding Arrangements – A Quick Guide for N.Z Employers
Many New Zealand employers invest significantly in employee training and development or pay for relocation costs. From formal qualifications and certifications to specialised technical or professional development to relocations from overseas.
Where that training is costly or involves relocation costs, employers often seek to protect their investment through training or bonding arrangements that seek assurances regarding an employee’s commitment and continued service to the employer.
When properly structured, these arrangements can be lawful and enforceable. When poorly drafted, misunderstood, or used unlawfully they can expose employers to unlawful deduction claims, penalties, wage recovery orders, non-compliance, personal grievance claims, along with a range of other adverse legal consequences. Understanding when bonding is permitted – and when it is not – is critical for employers.
What Is a Training or Bonding Arrangement?
A training or bonding arrangement typically requires an employee to:
Remain employed for a specified period after receiving paid training by their employer or having relocation costs paid by the employer to assist employee moving to New Zealand from overseas, such as flights and accommodation.
Repay some or all the training, or bonding costs if they resign within that period.
These arrangements are not prohibited under New Zealand law, but they are closely scrutinised and must meet strict legal requirements to be enforceable and legal.
Attempting to bond an employee for costs that an employer is expected to reasonably carry or incur in terms of being in business is a slippery slope to non-compliance and protracted legal disputes. Careful consideration needs to be taken by employers who are contemplating bonding an employee and for what specific purpose.
The Legal Framework: High-level
Employer must:
Act in good faith.
Not impose unlawful deductions or charge unlawful premiums for employment (section 5 and section 12A Wages Protection Act 1983).
Ensure any repayment obligation is lawful and agreed to in writing in advance.
The Employment Relations Authority (‘the Authority’), or the Employment Court (‘the Court’) will assess whether the arrangement:
Was freely agreed.
Is proportionate and lawful.
Reflects a genuine cost recovery, not a penalty, or part of the parcel of an employer’s reasonable costs that it is expected to carry in terms of doing business.
When a Training or Bonding Arrangement Is Lawful?
Bonding arrangements are more likely to be lawful where:
The training provides a clear benefit to the employee, beyond normal job skills. An employer cannot bond an employee for costs associated with training them to do their ordinary duties or job.
The bond period is reasonable and proportionate to the cost.
Repayment reduces over time (sliding scale).
The arrangement is clearly documented and agreed to in writing.
Lawful Example:
An employer pays $6,000 for an employee to complete an externally recognised qualification The employee agrees in writing to remain employed for 24 months, with repayment reducing by $250 per month if they resign early. This sort of arrangement would generally be enforceable.
When a Training or Bonding Arrangement Is Unlawful?
Bonding arrangements are commonly found unlawful where:
Training is mandatory or essential for the employee to perform their role, or ordinary duties.
Costs relate to onboarding or in-house training.
The bond operates as a penalty rather than cost recovery.
There is no written agreement or insufficient detail.
Deductions are made without express written consent.
Unlawful Example
An employer requires repayment of in-house training and induction costs if an employee leaves within six months, where the training was required to perform the job safely, or just necessary to perform the employee’s usual duties.
Such an arrangement is unlawful and would be unenforceable because training an employee to perform the employer’s work for the benefit of its business is a cost of doing business and therefore must be borne by the employer.
Common Employer Mistakes
Employers frequently expose themselves to liability and disputes by:
Bonding employees for mandatory workplace training.
Including vague clauses such as “training costs to be repaid”.
Failing to specify actual dollar amounts, which are then disputed.
Applying the bond regardless of who initiates termination, e.g. they later make an employee redundant.
Automatically deducting wages without consent.
Using the bond as a retention or deterrence mechanism to prevent an employee from leaving employment or moving to a competitor.
Type of Training
Bonding Permitted?
Health & safety training
No
Role-specific induction
No
Compliance / licensing required by law
No
Externally recognised qualification
Potentially
Advanced or specialist skills beyond role
Potentially
Importance of a Properly Drafted Agreement
A training or bonding arrangement should never be informal. At a minimum, it should:
Be in writing and signed.
Be agreed before training occurs, or costs are incurred.
Specify:
The training provided.
The actual costs covered.
The bond period.
A clear sliding repayment scale.
Circumstances where repayment will not apply.
Confirm employee consent to any deductions.
Poor drafting is one of the most common reasons bonding arrangements fail or are challenged.
Structuring Effective Bonding Arrangements
To reduce risk:
Limit the bond period (typically 6–24 months depending on cost).
Use a monthly reduction model, i.e. the amount reduces over time.
Exclude repayment where redundancy occurs.
Keep repayment tied to actual costs, not estimates.
Case Snapshot – What Issues Tell Employers?
Labour Inspector v Tech 5 Recruitment Ltd & Robertson [2016] NZEmpC 167
Tech 5 required carpenters to agree to trade testing and bond clauses that effectively meant the employees had to repay recruitment-related costs or face wage deductions if they left early.
The Court held that such costs were a premium for employment under section 12A of the Wages Protection Act 1983. This was because:
The costs sought to be recovered were those the employer would ordinarily bear.
The employer primarily benefited.
There was no mutual benefit exchange.
The Court confirmed the arrangement breached section 12A, making the deductions and bond terms unenforceable.
Employer takeaway: Charging employees for recruitment-related or ordinary training costs i.e., costs the employer normally incurs to ensure someone can perform the job is likely to breach the Wages Protection Act 1983 and render the arrangement unenforceable and unlawful.
McDonald’s Franchisee ‘Bonded Labour’ Situation
In 2019–2021, employees at four McDonald’s franchise restaurants in Auckland were given “commitment to employment” letters by franchisee Prakash Hira requiring them to pay $3,000 if they left employment within 12-months. The amount was described as covering “hiring/onboarding and training … orientation/follow-up orientation, training plans and time spent training, uniform costs as well as administrative costs.”
The letters required payment whether the employee resigned or the employment was terminated and effectively tied employees into staying for 12-months under threat of a large repayment obligation.
McDonald’s New Zealand corporate office was notified of the franchisee’s conduct and stated the policy was unapproved and not supported by head office. The franchisee was stood down and subsequently removed as the operator of the affected stores after McDonald’s internal investigation.
Employer Takeaway: This a strong real-world example of how training or bonding obligations can easily cross the line into unlawful employment practices if they require repayment for basic training costs and restrict employee mobility. Such arrangements are unenforceable and unlawful under the Wages Protection Act 1983 and will face vigorous legal scrutiny and potential legal implications when challenged.
Key Employer Takeaways
Training bonds are permitted but tightly regulated.
Not all training can be bonded – most cannot.
Clarity, proportionality and consent are essential.
Bonds must recover costs, not punish resignation.
Poorly drafted arrangements often cost more than they protect in the event of a dispute.
Compliance Warning
Training and bonding arrangements are a frequent source of disputes and enforcement action. Employers who impose repayment obligations without clear agreement, proper drafting, or lawful justification risk findings of unlawful deductions and adverse legal orders being imposed on them, such as penalties for non-compliance.
Bottom line: If a training bond is not carefully structured, documented and legally defensible, it is unlikely to be enforceable. Employers should approach bonding arrangements cautiously and seek professional advice before implementation as the cost of getting it wrong often exceeds the cost of the training, or bonding purpose itself.
This article is provided for general information only and does not replace professional advice. Employers should seek advice specific to their circumstances from Employer Pro if in doubt on their matters involving training and bonding arrangements. Employer Pro has a range of employer focused resources and services available through our competitive Employer Protection Packages.
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