Training cost clawback clauses under scrutiny: What the Geeks v Watts decision means for employers

Training cost repayment clauses are increasingly common, particularly where employers incur significant expense funding professional qualifications, external courses or other specialist training for their employees. However, the Court of Appeal’s decision in Geeks v Watts is a clear warning that training cost repayment provisions may fall within the restraint of trade doctrine, even if they do not expressly prevent an employee from leaving or working elsewhere. Where they do, they will be unenforceable unless the employer can show that they go no further than is necessary to protect a legitimate business interest.

This case is an important reminder for employers to review the structure, scope and proportionality of their repayment provisions, and for employees to understand when such clauses may be unenforceable.

Background

Mr Watts joined Geeks, an IT services company, as a trainee engineer earning £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 repayment amount began to reduce month by month only after his first year of employment. However, Mr Watts resigned after eight months, before any reduction applied, to take a higher-paid role elsewhere.

Geeks sued him for the full amount.

The Court of Appeal’s decision: Repayment provisions were an unreasonable restraint of trade

The Court of Appeal held that the repayment provisions were unenforceable. Even though they did not directly prevent Mr Watts from working elsewhere, they created a significant financial disincentive to leave. Looking at their practical effect, the Court held that they engaged the restraint of trade doctrine.

The Court proceeded on the assumption that Geeks had a legitimate interest in maintaining a stable, trained workforce. However, the repayment provisions went further than was reasonably necessary to protect that interest:

• The clause required repayment in almost every situation except redundancy), including if Geeks dismissed him.
• It applied regardless of why he left, whether to take another role in the technology sector, move into a different industry, or left without another job.
• Given Mr Watts’ salary, the repayment obligation had the effect of retrospectively reducing him to the equivalent of an unpaid intern during the early months of his employment.

The breadth and financial impact of the provisions made them unreasonable and therefore unenforceable.

Key lessons for employers

The decision does not mean that all training cost repayment clauses are unenforceable. Nor should employers assume that a clause will be enforceable simply because it is contained in an agreement signed by the employee.

Where an employer intends to fund training subject to repayment, particularly where substantial sums are involved, it should consider whether the provision may operate as a significant financial disincentive to leave. If so, the employer should identify the legitimate business interest it is seeking to protect and ensure that the repayment terms go no further than is reasonably necessary to protect that interest. Relevant considerations may include:

• the amount repayable;
• how liability reduces over time;
• the circumstances triggering repayment; and
• the financial impact on the employee.

How we can help

We advise employers on drafting and reviewing training cost repayment clauses and managing disputes arising from them. We also support employees facing repayment demands. If you require advice on a proposed clause or an existing dispute, please contact a member of our Employment team.