Can Apprenticeship Agreements Help Solve the Manufacturing Skills Gap?

The Scale of the Manufacturing Skills Gap

Apprenticeships are vital to the future of the UK’s manufacturing sector. They provide a pathway for employers to address the threat of both immediate and long-term skills shortages in the industry.

In 2022/23, over 46,000 apprentices began working on programmes in engineering and manufacturing technologies. These accounted for around 9.2% of all apprenticeships in England. However, it is important to flag that enrolments are on the decline. In the 2021/22 tax year, apprenticeship starts in the manufacturing sector were at almost 50,000. These figures demonstrate the decline in uptake of apprenticeship vacancies in the sector and show why concerns around a growing skills gap in the industry are rising.

In addition to this, manufacturers reported over 61,000 unfilled vacancies in 2024, with the problem set to worsen with many workers nearing retirement age. With three-quarters of manufacturers saying they struggle to recruit skilled staff, and fewer young people entering the industry, the risk of losing critical expertise is growing.

Why Apprenticeships May Help in Closing the Skills Gap

Apprenticeships offer a practical solution — enabling knowledge transfer, succession planning, and the development of the advanced skills needed to support growth in areas like green technologies, automation, and advanced manufacturing.

To ensure they are getting the most out of apprenticeships, manufacturers need to ensure their apprenticeship agreements are legally compliant. If the wrong type of contract is used, or if key details are missing from agreements, employers risk losing access to government funding. Legal and financial consequences are a distinct possibility.

Contract Structure: From Traditional Contracts to Modern Apprenticeships

Historically, apprentices were engaged under “contracts of apprenticeship” at common law. These contracts were designed around training, not service.

That distinction gave apprentices unusually strong protections: early termination was possible only for serious misconduct or in the event of a business closure, and redundancy was rarely an option. If an employer ended the contract prematurely, courts could award damages not just for lost wages but also for lost training and diminished career prospects. For businesses, that meant liability well beyond the costs associated with a normal dismissal.

Some employers tried to avoid this by issuing standard contracts of employment with a training element. These were easier to terminate, but they came with their own risks. Because they did not qualify as apprenticeships in law, they failed to attract funding and sat outside the statutory framework. In practice, employers risked creating arrangements that neither protected them nor supported apprentices properly.

The Apprenticeships, Skills, Children and Learning Act 2009 introduced a modern compromise: the “approved English apprenticeship agreement.” Since August 2020, all new apprentices in England must be engaged under this model and the associated published frameworks. The agreement is treated as a contract of service, giving employers greater flexibility while ensuring apprentices receive structured training.

The normal principles of breach of contract and unfair dismissal apply. In redundancy cases, the Education and Skills Funding Agency (ESFA) may fund the continuation of their training with another provider, particularly where the apprenticeship is close to completion.

For validity, the agreement must be in the prescribed form. It should :

• Specify the normal basic terms of employment
• Document the start and end dates
• Note the standard and level of the apprenticeship
• Confirm that it is a qualifying apprenticeship
• Include a practical period of at least 12 months
• Be governed by the law of England and Wales
• Detail the time to be spent on off-the-job training (at least 20% of hours).

Any variation of an Approved English Apprenticeship Agreement that undermines these conditions would cause the agreement to cease to be an approved English apprenticeship agreement. If such a variation takes place, the apprentice must be notified in writing; otherwise, it has no effect.

Should the EFSA learn that the Employer breaches the funding rules by utilising an apprenticeship agreement which is not valid, they do have the power to clawback funding already provided.

For a detailed comparison between apprenticeship agreements and employment contracts, see our guide here.

Not All Apprenticeship Agreements Are Equal

The differences between these forms of agreement are more than technical. A common law contract of apprenticeship leaves employers tied into a fixed term with limited exit routes, often resulting in significant liabilities if circumstances change. By contrast, a standard employment contract may seem simpler but fails to unlock levy support and leaves employers outside the statutory scheme.

The Approved English Apprenticeship Agreement sits in the middle ground. It is legally recognised and levy compliant. Employers retain the ability to manage dismissal or redundancy within the ordinary employment law framework, while apprentices still benefit from structured training that leads to nationally recognised qualifications. For most manufacturing businesses, this is the only practical option.

The Hidden Costs of Using the Wrong Agreement

The financial and legal risks of mislabelling an apprenticeship are substantial. An employer who inadvertently takes on an apprentice under a common law contract may find themselves liable for the full remaining term, even if the relationship ends early. Damages can be equivalent to the wages and training benefits that would have been received for the remainder of the apprenticeship term, plus a sum for loss of career prospects. Awards can often run into the tens of thousands of pounds in these instances.

Even where claims do not materialise, the use of an incorrect agreement can still block access to levy funding, forcing the business to cover training costs directly. In the manufacturing industry, where margins are tight and production schedules are critical, such unexpected liabilities can quickly disrupt operations.

There is also the reputational angle: disputes with apprentices can damage an employer’s standing with training providers, regulators, and future recruits.

Risks Manufacturing Employers Must Not Overlook

The stakes are higher in manufacturing because of the sector’s heavy reliance on apprenticeships and the consequences of anything going wrong. Errors can effect:

• Production continuity and workplace planning
• Safety-critical roles and supervision requirements
• Long-term technical knowledge transfer
• Project timelines and customer delivery expectations

Mistakes are not just administrative—they can disrupt production, affect long term workforce planning and damage customer confidence.  

Practical Steps for Manufacturing Employers

Employers should adopt a proactive approach to managing apprenticeship agreements:

• Ensure the use of up-to-date Approved English Apprenticeship Agreement templates that align with trainer provider documentation.
• Review agreements regularly in line with ongoing updates to apprenticeship standards and new funding rules.
• Consider incorporating levy transfers and partnerships with local training providers.
• Involve HR and legal teams in contract management rather than treating apprenticeship agreements as a formality.

Conclusion: Apprenticeships as a Long-Term Workforce Strategy

Apprenticeships are critical to closing the manufacturing skills gap, but their value depends on the right legal framework. Outdated or incorrect agreements create unnecessary risk, both financial and reputational.

It is also essential that an Employer issues their own Approved Apprenticeship Agreement and not just rely on the documentation and paperwork issued by the provider.

The best approach is to be proactive. Review your templates and ensure that you seek legal advice where necessary. By doing so, manufacturing employers can safeguard levy funding, reduce legal exposure whilst allowing employer’s the flexibility to better manage issues that may arise with an apprentice, and ensure that apprenticeships genuinely deliver the skilled workforce the industry so urgently needs.