According to the recent case of Geeks Ltd v Watts they can be. The Court of Appeal held that a ‘training fee clawback’ scheme, which required an employee to repay the cost of his training regardless of whether he remained in employment was unenforceable, as it amounted to an unreasonable restraint of trade.
Watts joined Geeks Ltd (“G Ltd”) in March 2019 as a trainee Quality Assurance Engineer. His salary was £18,000 in the first year, increasing to £20,000 and £22,000 in years two and three. Upon joining, Watts signed a training agreement requiring him to repay £8,108 in training costs to G Ltd if his employment ended for any reason other than redundancy. The arrangement stipulated that the amount repayable would gradually reduce after his first year of employment, but if he left before the debt was written off, he would have to repay the outstanding balance.
Watts resigned after eight months to join another company in a higher paid role, and G Ltd brought a claim against Watts to recover the full amount of the training costs. Watts argued that the repayment clause was an unlawful restraint of trade because it discouraged employees from leaving.
The Court of Appeal rejected G Ltd’s argument that the clause was simply a debt repayment provision and therefore fell outside the restraint of trade doctrine. The Court held that the application of the restraint of trade doctrine depends on the practical effect of the restraint in hampering the freedom to trade and that financial penalties for leaving employment can amount to a restraint of trade, even if they do not expressly prevent an employee from resigning.
The Court considered that if such clauses were automatically enforceable as debts, employers could impose extreme repayment obligations without any assessment of whether they were reasonable. It found that the restraint of trade doctrine was engaged because the repayment obligation acted as an indirect deterrent to leaving employment.
Although the Court accepted that G Ltd had a legitimate interest in retaining a trained workforce, it concluded that the clause went further than reasonably necessary. The repayment obligation applied regardless of how employment ended (save for redundancy). The Court also noted that requiring repayment of the full training costs would have reduced Watt’s earnings during the early months of employment to little more than those of an unpaid intern.
As a result, the Court of Appeal overturned earlier decisions and found the clawback provision unenforceable.
Alex Payton comments:
The recent decision raises the question of whether similar training fee clawbacks could constitute restraints of trade in practice. It is therefore important that employers consider the reasonableness of such arrangements, and whether the clawback could have the practical effect of hampering the employee’s freedom to trade.
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