Training cost clawbacks in contracts: when does repayment become an illegal restraint?

Training repayment agreements are common. An employer pays for an employee’s training, and, in return, the employee agrees to repay some or all of the cost if they leave within a certain period.

But there are limits on what employers can recover.

Geeks Ltd v Watts

The decision in Geeks Ltd v Watts shows that a requirement for repayment of training costs can sometimes be for such a high amount, that it’s deemed to unfairly stop an employee from leaving their job if they want to.

Mr Watts joined Geeks as a trainee engineer earning £18,000 a year. His agreement said that he owed £8,108 in training costs. He would have to repay this if he left within his first 12 months, with the amount then gradually reducing over the following 18 months.

After eight months, Mr Watts resigned to take a new job paying £30,000. Geeks asked him to repay the £8,108.

The Court of Appeal decided that the repayment clause was an unreasonable restraint of trade and wasn’t enforceable.

The training agreement didn’t actually say that Mr Watts couldn’t work somewhere else. But the amount he had to pay back was so significant that, in reality, it would likely discourage him from leaving.

5 things for employers and HR to check

The decision gives HR teams some useful questions to ask when reviewing training repayment agreements:

1. Are you recovering genuine training costs? In Geeks, the calculation included mentoring costs and the employee’s own salaried study time.
2. Is the repayment reasonable compared with salary? The size of the debt compared with Mr Watts’ relatively low salary was important.
3. Does the amount reduce over time? Mr Watts received no reduction during his first year.
4. When does repayment apply? The clause applied to almost every type of departure except redundancy.
5. Did the employee have a proper opportunity to consider the agreement? How and when the agreement was signed can also be relevant.

Two possible problems with enforceability

Employees could challenge a training repayment clause in two ways:

1. Like in Geeks, it might be an unreasonable restraint of trade because the financial cost of leaving for the employee makes it too difficult for them to move to another job.

• A clause might also be illegal if the financial consequences for the employee are out of proportion to the employer’s interest in protecting its investment of training that employee.

Key takeaways for HR

• You can still use training repayment agreements. But they should always be carefully drafted.
• The most important consideration is to make sure that repayment of the training costs reflects genuine costs to the company.
• Ensure that the repayment amount is reasonable, proportionate and reduces fairly over time.

Further reading

• Deductions for training courses – ACAS