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Many employers invest significant time and money in training their employees and understandably want to protect that investment. Training cost repayment clauses (often referred to as “clawback” clauses) are a common way for employers to do this. They require employees to repay some or all training costs if they leave employment within a specified period. They tend to be found in a typical Training Agreement or sometimes in an employment contract.
However, a recent Court of Appeal decision in Geeks Ltd v Watts highlights the importance of ensuring these clauses are carefully drafted and proportionate, if employers want them to be enforceable.
The facts
Mr Watts joined an IT services company as a trainee engineer on a salary of £18,000 per year.
His contract required him to repay £8,108 in training costs if his employment ended for any reason other than redundancy. The amount repayable reduced over time, but this tapering only began after he had completed 12 months’ service.
After only eight months, Mr Watts resigned to take up a better-paid role elsewhere. His former employer sought to recover the full amount of the training costs from him, in accordance with that repayment clause.
The court’s decision
The Court of Appeal held that the repayment clause was an unreasonable restraint of trade and was therefore unenforceable.
‘Restraint of trade arguments’ are traditionally associated with post-termination restrictions (a.k.a. restrictive covenants), such as non-compete, non-solicitation and non-poach clauses. They operate on the basis that the Courts follow a policy of permitting employees the freedom to leave current jobs and earn their living with other employers, and the freedom to be able to do this should be under as few restrictions as possible. In Geeks Ltd v Watts, the Court of Appeal confirmed that this rule against ‘restraint of trade’ doesn’t only apply to these post-employment restrictions: it can also apply to any other clause that might impact on an employee’s ability to get another job elsewhere, including with training costs repayments.
The Court’s conclusion was that a significant financial obligation triggered by resignation may well discourage an employee from leaving and can therefore be subject to challenge for being a restraint of trade.
The Court accepted that the employer had a legitimate interest in protecting its investment in the training. However, it concluded that the clause went further than was reasonably necessary to protect that interest.
In particular, the clause applied in almost all termination scenarios and placed a significant financial burden on an employee earning a relatively modest salary.
Does this mean training repayment clauses are unenforceable?
No. This decision does not mean that training cost clawback provisions cannot be used. Like most reported court decisions, the implications of the ruling are fact-dependent and don’t mark a fundamental shift in the law.
Instead, it highlights the importance of ensuring that any repayment arrangements are reasonable, proportionate and carefully tailored to the circumstances. The facts of this particular case were unusual. The repayment obligation exceeded £8,000 for an employee earning only £18,000 per year, meaning the potential repayment represented a significant proportion of the employee’s income. It was therefore a rather extreme case.
The judgment suggests that, when considering any future complaint by an employee that their training costs clawback clause is unreasonable, courts are likely to consider factors such as:
• the amount the employee is required to repay;
• the employee’s level of remuneration;
• whether the repayment obligation reduces fairly over time;
• the period during which repayment is required;
• the circumstances in which repayment is triggered; and
• whether the clause goes further than is reasonably necessary to protect the employer’s legitimate interests.
Practical lessons for employers
Employers who use training repayment provisions should consider reviewing their agreements. Questions worth asking include:
• Is the repayment amount proportionate to the actual training investment?
• Does the repayment obligation reduce progressively over time?
• Is the repayment period longer than necessary?
• Should repayment apply in every situation where employment ends, or should it be limited to those where the employee is more at ‘fault’ (e.g. misconduct, poor performance) and/or exercising a clear choice (e.g. resignation)?
• Could the clause be viewed in this particular job role, as discouraging the employee from changing jobs rather than simply protecting a genuine business investment?
• With low-paid roles, should you accept that it’s not going to be reasonable to expect to recover all/most of the training costs and this is simply a risk the business needs to manage and factor in?
• Are you doing all you can to reduce the risk in trainees leaving you? Can you offer a more competitive salary? Better terms and conditions? Deferred bonuses to encourage retention?
• Would it be better to aim to recruit those who already have the required skills/qualifications, rather than paying for the training?
The general approach is that a clause that is reasonable, proportionate and linked to a genuine business need is more likely to withstand challenge than one that creates a significant financial barrier for employees looking to move on in their careers.
Final thoughts
The Court of Appeal’s decision in Geeks Ltd v Watts is a useful reminder that training repayment clauses must be carefully considered.
While employers do not need to remove these provisions from their contracts, they should review existing agreements to ensure they remain fair, proportionate and capable of being enforced.
The key is to ensure that repayment provisions protect a genuine investment in employee development rather than operating as a financial penalty or discouraging employees from progressing their careers elsewhere.
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