By Jo Seery Professional Support Lawyer
Background
Joseph Henry Watts joined Geeks Limited, an IT services company, in March 2019 as a trainee quality assurance (QA) engineer on a salary of £18,000 a year. Alongside his employment contract, he was required to sign a separate “Training Investment” agreement under which the company claimed to invest £8,108 in mentoring, training and development during his first six months of employment. The agreement provided that those costs would become repayable if his employment ended for any reason other than redundancy, with the debt reducing only after the first 12 months of employment.
After eight months, Mr Watts resigned to take up a better-paid role elsewhere in the technology sector. Geeks subsequently brought proceedings to recover the full £8,108 under the training clawback provisions. Mr Watts argued that the provisions were unenforceable because they amounted to an unlawful restraint of trade. Both the County Court and the first appeal court upheld the clause, finding that the company had a legitimate interest in protecting its investment in training and retaining skilled employees. Mr Watts appealed to the Court of Appeal.
Outcome
The Court of Appeal allowed the appeal and ruled that the training repayment provisions were an unreasonable restraint of trade and therefore unenforceable. The Court confirmed that a clause requiring an employee to repay money on leaving can restrain trade even if it does not directly stop them working elsewhere. It rejected the employer’s argument that the clause was merely a debt recovery mechanism and therefore outside the scope of restraint of trade principles.
The Court held that the financial disincentive to leave was enough to bring the clause within the orbit of restraint of trade principles and therefore under scrutiny for reasonableness. While the Court was prepared to assume that an employer may have a legitimate interest in maintaining a stable, trained workforce, it found that the clause went further than was reasonably necessary to protect that interest. It applied, with the sole exception of redundancy, regardless of how the employment ended and whatever the employee went on to do next.
The Court also considered the practical effect of the arrangement. Given the relatively modest salary paid during the training period and the scale of the repayment obligation, the clause effectively turned a low-paid trainee retrospectively into something close to an unpaid intern. The Court concluded that the provisions imposed an unreasonable restraint on an employee’s freedom to move on from their employment and were therefore unenforceable.
Comments / Key takeaways
This is a significant decision for employers seeking to use training repayment or clawback arrangements as a retention tool. The Court of Appeal made clear that clauses requiring employees to repay substantial training costs are not automatically enforceable simply because they are framed as debts rather than post-termination restrictions. Where such provisions create a financial disincentive to leaving employment, they may be scrutinised under restraint of trade principles.
The judgment also serves as a reminder that employers must be able to justify not only the existence of a training repayment clause but also its scope. Provisions that apply regardless of the circumstances of departure, with only limited exceptions, or which impose disproportionate financial consequences on relatively low-paid workers, are unlikely to withstand scrutiny.
Impact of the decision
For trade unions, the decision is a useful authority for challenging training repayment clauses that deter workers from leaving for better-paid or more secure employment. Unions should scrutinise clawback arrangements, especially where they affect low-paid workers, involve substantial sums or apply regardless of the reason for leaving. Where members are asked to sign training agreements, unions may wish to seek disclosure of the alleged costs, negotiate fair tapering provisions and press for exclusions where repayment would be unfair, including dismissal, ill health or resignation in response to poor treatment.
