Training employees is part of the employment landscape. That training might be ongoing professional development, or it might be a more formalised programme as part of gaining a professional qualification. For employers, especially in the latter category, there’s always a risk; will the employee leave our employment after we have invested in their future value but before we are able to realise that value?  

To counter that risk, employers will often and understandably, incorporate some sort of recoupment of training costs if the employee does make an early exit. 

A recent Court of Appeal case has provided some useful guidance on these clauses.

Training fee clawback clauses can be an unreasonable restraint of trade 

Reminder of legal principles

• Any recoupment clause which penalises the employee for leaving employment is a penalty clause and is unenforceable

• Any contractual term which restricts an employee’s activities after the termination of their contract is potentially a restraint of trade UNLESS

  - The restriction protects a legitimate proprietary interest

  - The protection sought is reasonable 

Geeks Ltd v Watts - Case Details

Mr Watts started work with Geeks Ltd on 15 March 2019. Mr Watts was hired as a trainee engineer on an annual salary of £18,000. He signed two agreements; one was an employment contract. The second document was a Training Contract outlining the cost of his training. The cost was just over £8,000; it was broken down into costs allocated towards mentoring and costs allocated towards study and practice activities. 

The Training Contract outlined that this training cost or debt could be paid by work contribution e.g. once Mr Watts had worked for 12 months the debt would be written off by 1/18^th each complete month of full-time employment. 

It could also be paid off by monetary payment e.g. if he left before the debt was paid (for any reason other than he was made redundant), he would pay the outstanding balance. The contract further noted that Mr Watts would not be in breach of contract if he stopped working for Geeks and that they did not intend in any way to restrict him from working elsewhere.

The relationship between Mr Watts and his employer was not a long and happy one. Eight months after it began, Mr Watts resigned (he had a new much better paid job). Despite this much better paid role, he did not start to pay his training debt back to Geeks and so they pursued him in the County Court for the debt. Mr Watts responded arguing that the clawback provisions constituted not a penalty clause but rather an unlawful restraint of trade and went further than was needed to protect Geeks’ business interest. In requiring the payment of such a debt, he argued his former employer was preventing him from seeking employment elsewhere. This appears from the facts to be untrue as he had another job but nevertheless he was successful in the lower courts with this argument.

The case went all the way to the Court of Appeal and so we have some useful guidance on clawback clauses, when they are a restraint of trade and what employers can do to ensure they are reasonable.

Practical lessons learnt

• Financial disincentives which may impact an employee’s ability to leave employment and work elsewhere, could be a restraint of trade. The principle is not limited to overly harsh restrictive covenants for high level staff.
• With that in mind, it’s crucial that such clauses are reasonable if they are to be enforceable.

What are reasonable recoupment clauses?

• Address when repayment will occur and limit the circumstances.  Geeks’ clause applied to the termination of the contract for whatever reason other than redundancy. The Court of Appeal stated this was unreasonable and there should have been more thought given to other circumstances.
  • Compare the size of the debt with the size of the salary – is it proportionate to the salary of the employee? The Court of Appeal noted that Mr Watts was earning little more than the NMW and had a debt over him and hence had the status equivalent to an unpaid intern. This was even though Geeks were able to bill for Mr Watts’ services.
  • If you break down the debt to prove its legitimacy, do so accurately.  Geeks outlined how the £8,108 was calculated but it did not match up to the reality.
  • Avoid payment in a lump sum but rather ensure a monthly payment plan can be followed. Do not include a clause whereby one missed payment triggers the requirement to pay the debit in full
  • Only include a clause encouraging the employee to obtain legal advice if you will contribute towards it if it’s clear from the starting salary that the employee will not.
  • Consider the parties who are signing the clause – is there an inequality of bargaining power? Is the employee at the start of their career with little experience or knowledge of what they are signing or vice versa?
  • Including a clause states that you are not restricting the employee’s ability to go elsewhere will have no credence if the debt they carry makes that impossible. 

Action Points

• If you have recoupment / clawback clauses for training within your contracts or other documentation, check they are reasonable
• Look at learning points above and assess your existing clauses against the Court of Appeal’s guidance
• Seek advice on re drafting if concerns about reasonableness
• One size will not fit all – be aware that different clauses will be needed to address different levels of training and different levels of seniority and salary
• As per our blog of January 2025 ensure any clawback of immigration costs for sponsored employees are compliant with Home Office guidance 

If you would like any further information on this case or specific advice on clauses in your contracts of employment, please get in touch.