Training bond agreements are increasingly common, where employers invest in their employees’ training and development in exchange for the employee’s agreement to stay on with the employer for a certain period. Employers may seek to recoup their investment if the employee leaves before the bond period is over.

In principle, training bond agreements are enforceable, if they are clear, reasonable, and not contrary to public policy. However, disputes arise when employers seek to recover the costs invested in training through liquidated damages, and employees challenge the validity of these agreements. 

Two High Court cases below illustrate how the Courts approach the enforceability of such agreements.

Mohd Azril bin Md Ghazali v Johor Port Bhd [2022] MLJU 2600

  • Mohd Azril was employed as pilot at Johor Port’s Marine Department in May 2013.
  • He then signed a Marine Pilot Training and Bond Agreement with Johor Port, committing to a six-year bond with Johor Port in exchange for his training being sponsored by Johor Port. 
  • The bond required him to reimburse Johor Port RM100,000 if he leaves Johor Port before the end of his bond period. 
  • Mohd Azril resigned after only 3 years. He offered to pay a prorated amount based on the unserved months for the training bond, while Johor Port insisted on the full RM100,000.

Mohd Azril contested the validity of the training bond agreement, arguing that it was invalid because he already held a Marine Pilot License (Grade A) when he signed the bond, implying that the training was unnecessary. 

However, both the Sessions Court and the High Court ruled in favour of Johor Port, finding the agreement valid and enforceable. The Courts emphasized that Mohd Azril had raised no objections to the legality of the training bond agreement when signing it and had therefore breached the agreement by resigning before the end of his bond period. 

Mohd Azril was ordered to pay the full training bond sum of RM100,000 to Johor Port.

Malaysian Airline System Bhd v Yong Chong Hee & Anor [2010] MLJU 2214

  • Yong, a former pilot for Malaysian Airline System (MAS), entered into a Course Conversion Training Agreement where MAS was to provide and sponsor Yong a course of B737 conversion training. 
  • The agreement required Yong to remain in service with MAS for three years or else pay 150% of the training costs of RM162,000. 
  • Yong resigned after only six months of service and MAS sought to recover 150% of the training costs.

Yong argued that MAS had unilaterally terminated his training, which nullified the bond. 

The Sessions Court initially ruled in his favour, agreeing that MAS unilaterally terminated his training and had failed to respond to Yong’s request for reinstatement of his training. 

However, the High Court reversed this decision. The burden of proving that MAS terminated his training was on Yong, who relied solely on being grounded and on MAS’ non-response to his request for reinstatement. The evidence instead showed that Yong completed four stages of training and was awaiting a recommendation for the final stage. Therefore, the termination could not be assumed and it required explicit communication from MAS.

In this regard, the training was not terminated by MAS and Yong breached the training bond agreement when he chose to resign before completing the bond period.

Although the training bond agreement provided that Yong must pay 150% of the training costs of RM162,000, the Court eventually ordered him to pay the sum of RM91,463.64 which represented the actual amount spent by MAS for the training. 

Key Takeaway

The enforceability of training bond agreements hinges on the specific terms and the conduct of the parties. Courts will generally uphold these agreements if they are reasonable, properly executed, and reflect the legitimate interests of the employer.  Employees challenging such agreements must prove, for example, that the agreement entered is illegal, or vitiated under the usual contractual principles. 

In both cases discussed, the courts favoured the employer, emphasizing the importance of honouring contractual obligations. Hence, training bonds, when drafted carefully and reasonably, remain enforceable in the eyes of the law.

***

This article was written by Sean Ferdinand Ng (Senior Associate) from Donovan & Ho’s dispute resolution practice. 

Donovan & Ho is a law firm in Malaysia, and our employment practice group has built a reputation for providing strategic employment advice to local and global organisations. Our team of employment lawyers provide advice on employment law and industrial relations including review of employment contracts, policies and handbooks, advising on workforce reductions, and managing dismissals of employees for poor performance or misconduct. We also represent clients in unfair dismissal claims and employment-related litigation.

Our dispute resolution provides advice and legal representation in the civil and industrial courts. We also represent clients in both domestic and international arbitration, as well as other forms of alternative dispute resolution. Our experienced lawyers are also able to assist in commercial and civil disputes (such as debt recovery, shareholders’ or directors’ disputes, breach of contract and claims for injunctive relief), constructive disputes (arbitration and/or adjudication proceedings, disputes relating to delays, liquidated damages, defects and rectification work) and employment disputes (unfair dismissal claims, judicial review proceedings, and employment-related civil claims).

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