It is not uncommon for employers to seek to "claw back" training costs from employees if they leave employment within a certain period following completion of training paid for by their employer. In Geeks Limited v Watts, the claimant had entered into both an employment contract and a separate "Contract of Training Investment" ("training contract") with Geeks Limited ("Geeks"). The training contract set out that the first six months of the claimant's employment would be a six-month training period. Costs incurred by Geeks during this period included "mentoring" at £60 per hour and 100 hours of "employment cost" spent on "study and practice activities" at £13 per hour.
The training contract provided that the claimant would effectively work off this "training cost debt" through continued service. However, if he left before the debt had been extinguished, he would be required to repay the outstanding amount. After around eight months of employment, Mr Watts resigned to take a higher-paid role elsewhere. Geeks subsequently sought to recover the full £8,108 under the clawback provisions.
Geeks was successful in the County Court and on a first appeal, with the courts finding that the provisions protected a legitimate business interest. The claimant appealed to the Court of Appeal.
Court of Appeal judgment
The Court of Appeal found that the training fee clawback was a restraint of trade and that, even if Geeks had a legitimate interest to protect, the restraint was not justified. The arrangements in this case went further than was reasonably necessary. The repayment clause was therefore unenforceable. In reaching this conclusion, the Court relied on two reasons:
- the repayment provisions applied irrespective of the reason for termination of employment (other than for redundancy), or whether he was leaving to work in the same industry, a different industry or not to work at all; and
- looking at the broader picture, the effect of the clawback provisions was that, in the early months of his employment, the claimant, who was paid not much more than the national minimum wage, was reduced in retrospect to the equivalent of an unpaid intern, albeit with a loan repayable over time.
In the circumstances, the Court did not accept that the repayment provisions went no further than reasonably necessary to protect the legitimate interests of Geeks.
How can employers ensure training cost repayment clauses are enforceable?
The judgment highlights several important considerations for employers:
- Ensure training costs are genuine and demonstrable. Clauses relating to identifiable costs for training expenses, qualifications or external courses are more likely to be enforceable than those related to onboarding, supervision or mentoring.
- Ensure clawback provisions are proportionate. Repayment obligations that reduce over time to reflect the value the employer has already received from the employee's service are more likely to be enforced.
- Avoid creating a barrier to job mobility. If the cost to the employee of leaving is so significant as to effectively deter them from moving, the provision may be vulnerable to challenge as a restraint of trade.
- Consider the reason for termination. Although redundancy was excluded in the Geeks case, employers should consider excluding other circumstances where repayment may be difficult to justify.
- Review existing training agreements. Employers with clauses that cover the cost of internal training, management time or mentoring should revisit contractual terms in light of this judgment.
While employers are entitled to protect genuine investment in employee development, clawback clauses must be carefully drafted, proportionate and linked to real expenditure.
It is understood that Geeks is seeking permission to appeal to the Supreme Court, so this may not be the last word on this issue.
