A penalty larger than the fee?

I’m not sure if this is a question or not;
I work for a large oil company. We’re obligated to complete an eight-hour defensive driving course paid for by the company as a condition of employment regardless of whether or not we drive on business.
Anyway, we’re told that the fee for this course is $350 per, which makes sense to me. But “they” say that if we miss the class without withdrawing sometime in advance the cost is $500 per!
How (and why) can this be?
To be clear (I hope);
If there are four students in the car the cost is $1400.00, if there are only three the cost is $1550.00. If the cost remained $1400.00 I’d get it, but this seems wrong.
I guess my question is, are we being somehow deluded, or is this a common practice in business.

Because your company signed a contract with this driver-training firm, and they included that penalty fee in the contract. Obviously, this company seriously dislikes ‘no-shows’, and put in this penalty clause. And your company agreed to it being in the contract.

Penalty clauses take all kinds of forms, and are fairly common in contracts.

Can’t say for sure in this case, but one possibility is that the company is chipping in for the course. If you don’t show up, the company’s share goes away so you are obligated for the whole cost.

I’ve seen stuff similar to this for various training courses in computing.

The problem is that contract law absolutely prohibits penalties and there are not enforceable. Therefore, those clauses are referred to as “liquidated damages.” However they still must bear some semblance to the actual damages that could be had by the non-breaching party.

It seems as if paying $500 for something that they would have only gotten $350 for had the contract been performed is clearly a non-enforceable penalty. I’m sure that the company the OP works for isn’t going to sue over that and damage their relationship with this company, but if it came down to a court date, I can’t imagine a judge finding that this isn’t a non-enforceable penalty.

Is it that clear?

I think the company would argue that lack of a defensive driving class may expose them to some greater possibility of liability, in spite of whether it’s done for business purposes or not. Especially if the company provides health insurance, and that health insurance could ostensibly cover injuries suffered by an employee while driving their own vehicle on their own personal time.

ETA: Point raised under the same ideas that companies can disincentivize smoking tobacco by declining to offer non-mandatory health benefits or separating the employee because of a refusal to stop smoking.

If I understand the OP correctly, his company contracts with a third party to offer the defensive driving class. In the event of a breach, the employee has to pay this third party $500/hr instead of $350.

I think that your employer could have clauses in your employment contract that deal with the issues that you mention, but looking at it from the third-party’s perspective, it is a better deal for them for you not to show up. That creates a windfall and the “liquidated damages” are calculated up front to be more than the loss they suffer. That’s the very definition of a penalty.

The OP’s (my) company pays the entire cost either way. My no-show would cost me nothing except my boss’ ire. That’s what surprises me.
I suspect somebody got something backwards. I could see $500 for the class and $350 for a no-show. More likely $500 either way.

As mentioned, genuine penalty clauses are not enforceable in contracts; a clear penalty clause would be something like “if you fail to pay me the agreed $10 on time, you must pay me $500 instead as a penalty”. If the other party breaches a term and causes you loss, you can only claim for the relevant amount of damages to compensate you for that loss. You can either go to court and ask them to calculate what your damages should be (known as seeking “unliquidated damages”) or the parties can include a clause in the contract which specifies how damages should be calculated when a certain term is breached (called a “liquidated damages” clause). Liquidated damages clauses are allowed, but only if they are a genuine pre-estimate of the loss suffered. If they become so severe that the court considers them a “penalty” they’ll be deemed unenforceable.

The courts are generally fairly lenient on liquidated damages clauses; they’ll only strike them down as penalty clauses if they are “extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach”.

In the OP’s example, I don’t know who the parties to your contract are - is it between you and an independent driving course provider? Or you and your company? Or the company and an independent provider? Either way, I’m sure it’s arguable that a no-show could cause greater loss than turning up. $500 per hour as opposed to $350 per hour is significantly higher, but it may not be deemed “extravagant and unconscionable” regarding the greatest conceivable loss. Repeated no-shows might damage your company’s relationship with the provider; your company might have to pay for another course for you since the course is obligatory; the instructors might get paid more if no one turns up, with a knock-on effect for the customer’s fees; etc. It’s hard to tell without knowing more details, but those are the types of thing a court would consider that might increase the conceivable loss.

Of course, it’s also possible that a no-show wouldn’t cause any extra loss at all and that a clause increasing the price by 40%+ in such a case would be deemed a penalty clause and struck down. But it’s not a clear-cut thing either way. (This is all under English contract law by the way, it may differ in other jurisdictions).

Again ;), the only contract is between my company and the training contractor. I’m not a party to that contract and noy under any obligation to the contractor. I can, it seems, cause my company a $150 loss, which doesn’t seem fair.

Is it simply possible that the standard fee for the course is $500 and your company negotiated a corporate rate of $350? Then the contract only changed the base rate and not the penalty? They could then (perhaps) reasonably argue that the no show was a lost opportunity to get a $500 customer. It still isn’t symmetric, but they are not required to discount their potential loss of income in the same manner they discounted the price of the place on the course.

You say “again” but you never explicitly specified the parties to the contract before as far as I can see. Just because the company is paying for you doesn’t mean they signed the contract.

As I said, it’s an attempt at a liquidated damages clause based on a pre-estimate of the training company’s loss if you no-show. There might be genuine reasons why they’d suffer extra loss if you don’t show up. On the other hand the clause might just be a penalty with no basis in extra loss. That’s how you decide whether it’s “fair” from a legal perspective. But we couldn’t make a judgment on that without a lot more details.

Is it possible that your company is subsidizing $150 of the cost of the class but if you no-show they are placing the full cost on you?

This makes the most sense. By your no-show, you took up a slot that they could have otherwise filled with a paying customer who didn’t have a contract through your employer. The difference in fees is because your employer has negotiated a lower rate in exchange for a guaranteed flow of continual business. Average joes have to pay the full $500 rate, and you robbed them of the opportunity to offer that spot to an average joe.

Oh come on. Its pretty clear from the reading of the OP (by the average person) and other posts that the contract is between my company and the contractor.
I suspect that we (the employees) may be being hoodwinked. We are less likely to miss the training if we think we might get in trouble. :smiley:

Nope. I’ve seen contracts like that between employees and external contractors directly. If you think it makes sense to ask questions about contract law without actually specifying who the parties to the contract are, you haven’t really grasped how contract law works.

In the OP I asked if assessing such a penalty was a common practice in business, not about contract law.
I have signed contracts for a contractor to perform maintenance and repair of systems here, but never where I was personally a recipient of any services, like training.

You’ve seen contracts where the recipient of a service pays a penalty on top of the normal fee for not using that service?

4 people x $350 = $1400.00

If you dont show up there will only be 3 people which results in the total being $1550.

3 people x $350 = $1050.00

$1550 - $1050=$500.00

By you not showing up the difference from what the 3 people that did show up paid and the total price is $500. Which you would be responsible for since the increased price was due to you not showing up.

I’m going to have to ponder this for a while. It seems you said the same thing I did. The provider winds up with an extra $150 for teaching fewer people.

You might not realize it, but you’re asking about contract law. The type of penalty you’re asking about is contractual.

I’ve seen contracts where the recipient of a service pays a penalty on top of the normal fee for a breach of contract, which it sounds like your no-show would be. Lordsvale Finance Plc v Bank of Zambia [1996] for instance.