When training cost clawbacks go too far

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Training repayment agreements are common, an employer funds an employee’s training and, in return, the employee agrees to repay some or all of the cost if they leave within a specified period. However, there are limits on what an employer can recover.

The recent Court of Appeal decision in Geeks Ltd v Watts highlights those limits, showing that a repayment requirement may be so significant that it unfairly restricts an employee’s ability to leave their job.

An £8,108 bill on an £18,000 salary

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 could not be enforced.

The agreement did not actually say that Mr Watts was prevented from working elsewhere. However, the amount he would have to repay was so significant that, in practice, it could discourage him from leaving.

What should employers check?

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

  • Are you recovering genuine training costs? In Geeks, the calculation included mentoring costs and the employee’s own salaried study time.
  • Is the repayment reasonable compared with salary? The size of the debt compared with Mr Watts’ relatively low salary was important.
  • Does the amount reduce over time? Mr Watts received no reduction at all during his first year.
  • When does repayment apply? The clause applied to almost every type of departure except redundancy.
  • 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

Training repayment clauses can potentially be challenged in two ways. A clause may amount to an unlawful penalty if the financial consequence for the employee is out of proportion to the employer’s legitimate interest in protecting its investment.

Alternatively, as in Geeks, a clause may be an unreasonable restraint of trade if the financial cost of leaving makes it too difficult for the employee to move to another job.

This does not mean employers should stop using training repayment agreements, but they must be carefully drafted. For HR, the key is to ensure that repayment reflects genuine costs, that the amount is reasonable and proportionate, and that it reduces fairly over time.

Here to help

Our Employment team can help employers review and draft training repayment agreements so that they reflect genuine costs and remain reasonable and proportionate. If you would like advice on introducing or enforcing a training cost clawback, please contact Miranda Mulligan, Senior Solicitor, in our Employment Law team.

Please note, the contents of this article are provided for information only and must not be relied upon.