With around 900 apprentices left uncertain of their future following the administration of Phones 4U, Jane Byford considers the legal position for learners, and also providers, in such a situation.

Although the economy is recovering and most businesses are gradually making their way out of the recession, the risk of going into administration still remains, as demonstrated recently by the demise of Phones 4U.

Insolvency affects all individuals who work for an organisation, but what particular impact does it have on apprentices and their training providers?

As a starting point, it is important to draw a distinction between “contracts of apprenticeship” and “apprenticeship agreements”.

Contracts of apprenticeship are traditional apprenticeship arrangements, the primary purpose of which is to provide training rather than performing work for the employer.

In contrast, apprenticeship agreements are entered into and governed by the Apprenticeships, Skills, Children and Learning Act 2009 and are akin to standard employment contracts.

The agreement is usually between the employer, the apprentice and the training provider and the arrangement must fulfil certain criteria.

At the end of the agreement, the apprentice will receive a recognised qualification and it is not the employer who provides the training but the training provider — often an FE institution.

Terminating apprenticeship contracts is less straightforward than terminating the contracts of other workers and employees.

While most employers are familiar with the rules governing dismissal of employees, ie there must be a fair reason and a fair process followed, many employers are unaware that an apprenticeship cannot necessarily be terminated in the same way as other fixed term contracts.

Without a replacement employer, the apprenticeship often cannot be completed

As the primary focus of a contract of apprenticeship is to provide training, an employer can only terminate the contract in limited circumstances eg severe misconduct or closure of the business.

If the employer terminates in other circumstances, it can be liable for loss of earnings and training for the remainder of the apprenticeship.

On the other hand, apprenticeship agreements can be terminated lawfully provided that the dismissal is fair and in accordance with the contract itself.

Where the employer goes into administration, unfortunately apprentices do not have protection over and above that afforded to other employees.

If the employer becomes insolvent and the employment is terminated, the National Insurance Fund (NIF) guarantees payment of certain employment debts, including up to eight weeks’ arrears of pay (with a cap on the amount that can be claimed as “weekly pay”) and certain amounts in respect of holiday pay, notice pay and redundancy payments.

The NIF also guarantees payments in respect of reasonable apprentices’ fees or premiums, with no cap on what can be recovered, but this protection extends to apprentices themselves, not to the training provider.

On insolvency there is no right to recover loss of future earnings and training, as is usually the case when a contract of apprenticeship is terminated.

Often, apprentices and their training providers will find that, despite the significant amount of time and money that has been invested in the apprenticeship, without a replacement employer, the apprenticeship cannot be completed.

The Skills Funding Agency (SFA) has confirmed that, in such situations, it will seek to identify potential alternative providers and to manage the transfer of apprentices to new providers, as well as redistributing funding to ensure learners and public funds are protected.

While there is no guarantee an apprentice will be safeguarded in the event of their employer going into administration, there is hope the SFA will assist where possible.

This may provide some comfort to apprentices who find themselves without an employer due to insolvency and indeed the SFA has confirmed it is striving to support those apprentices of Phones 4U who wish to continue and complete their apprenticeships.

However, it is well worth FE institutions having and maintaining links with numerous employers, so that they can assist apprentices in finding alternative employer in circumstances such as these.