A significant Court of Appeal decision has important implications for employers that use training repayment ("clawback") clauses in employment contracts.
Many employers require employees to repay training costs if they leave within a specified period after receiving employer-funded training. However, the recent case of Geeks Limited v Watts demonstrates that these provisions must be carefully drafted if they are to remain enforceable.
Mr Watts entered into both an employment contract and a separate training agreement with Geeks Limited. The agreement stated that his first six months of employment would constitute a training period, with costs including mentoring, study time and employment expenses amounting to more than £8,100.
The agreement required Mr Watts to repay any outstanding training costs if he left before completing a specified period of service. After resigning approximately eight months into his employment, Geeks Limited sought to recover the full amount. Although the employer initially succeeded in both the County Court and on first appeal, the Court of Appeal reached a different conclusion.
The Court of Appeal held that the repayment clause amounted to an unenforceable restraint of trade because it went further than was reasonably necessary to protect the employer's legitimate business interests. The repayment obligation applied regardless of why the employee left or whether they intended to work for a competitor, move into a different industry or leave the workforce altogether.
The financial impact was also disproportionate. Given the employee's relatively low wages, the repayment obligation effectively reduced his earnings during the training period to the equivalent of an unpaid internship. As a result, the Court ruled that the clawback provisions were unenforceable.
Following this judgment, employers should review all existing training repayment agreements and consider the following:
Repayment clauses should relate to identifiable external training, qualifications or course fees, rather than internal mentoring, supervision, onboarding or management time.
Repayment obligations should reduce over time to reflect the benefit already received from the employee's continued service.
Clauses that impose such significant financial consequences that they discourage employees from changing jobs may be challenged as an unlawful restraint of trade.
Employers should consider excluding repayment where employment ends because of redundancy, ill health, the employer's breach of contract or other circumstances in which recovery would be difficult to justify.
Organisations relying on broad training repayment clauses should seek legal advice and update their contractual wording where necessary.
Employers remain entitled to protect genuine investments in employee training. However, following Geeks Limited v Watts, repayment provisions should be based on genuine, identifiable expenditure, be proportionate, and go no further than is reasonably necessary to protect legitimate business interests.
It is understood that Geeks Limited is seeking permission to appeal to the Supreme Court, meaning further developments may follow. Until then, employers would be well advised to review their training repayment clauses as a matter of priority.
If you need any further advice and assistance, please do not hesitate to contact the Quest HR Advice Line on 01455 852028.
