TRAINING FEE CLAWBACKS
Court of Appeal sounds a warning for employers
Training fee clawback provisions have long been used by employers seeking to recover the cost of investment in employee development. However, the Court of Appeal has confirmed that these clauses can engage the restraint of trade doctrine and will only be enforceable where they protect a legitimate interest and go no further than reasonably necessary.
In Geeks v Watts, the Court of Appeal found that the employer’s training fee clawback provision was unenforceable because its terms went beyond what was reasonably necessary to protect the employer’s interests.
The background
Mr Watts joined Geeks Ltd as a QA Engineer (Trainee) on a salary of £18,000 per year, increasing over two years. Alongside his employment contract, he entered into a separate Training Investment Agreement covering a six-month training period.
The agreement recorded a Training Cost Debt of £8,108, which included mentoring and study/practice costs. The debt was reduced through continued service, with the balance becoming repayable if employment ended before it was fully written off.
The agreement stated that Mr Watts was free to leave and was not intended to restrict him from taking other work.
After eight months, Mr Watts resigned to take a new role paying £30,000 per year. Geeks Ltd sought to recover the outstanding training costs, but Mr Watts argued that the clawback was an unlawful restraint of trade.
The County Court and first appeal upheld the clause, finding it protected the employer’s legitimate interest in retaining a stable, trained workforce. However, the Court of Appeal allowed Mr Watts’ appeal.
The Court of Appeal’s decision
The Court of Appeal confirmed that financial disincentives to leaving employment can fall within the restraint of trade doctrine. The key question is the practical effect of the clause on an employee’s freedom to work, assessed at the time the agreement is entered into.
A clause does not need to prevent an employee from resigning to amount to a restraint. A requirement to repay salary or training costs in certain circumstances may still restrict an employee’s ability to leave.
However, not all conditional benefits will be treated as restraints. For example, commission arrangements linked to continued employment may be acceptable, but broad repayment obligations will require closer scrutiny.
Why the clause failed
The Court accepted that maintaining a stable, trained workforce was a legitimate interest. However, it found that the repayment terms went further than reasonably necessary.
The key issues were that:
repayment applied regardless of the reason for departure, including where the employer ended the employment;
repayment applied regardless of the employee’s future role or salary;
the financial impact was particularly significant given Mr Watts’ low salary, effectively reducing him retrospectively to unpaid work with a debt owed to the employer; and
the calculation of the training costs was questionable, particularly the mentoring rates and the inclusion of time where the employee was already providing value to the business.
Practical points for employers
The decision is a reminder that training fee clawbacks must be carefully drafted and proportionate. Employers should ensure that any repayment obligation protects a genuine business interest and does not operate simply as a deterrent to employees leaving.
Employers should consider:
tailoring repayment obligations to the circumstances, including reductions or waivers where the employer terminates employment or where the employee leaves for reasons unrelated to the training;
using a proportionate tapering approach over a defined period;
avoiding repayment amounts that could undermine minimum-wage-level pay;
structuring repayments in affordable instalments rather than requiring immediate repayment;
ensuring training costs are based on genuine, evidence-based figures reflecting actual costs rather than inflated internal rates;
keeping the scope narrow and focused on specific, costly training rather than general onboarding or supervision; and
recording that employees have had access to independent advice, particularly where there is an imbalance in bargaining power or lower-paid employees are involved. Employers should also distinguish between recoverable external training costs and internal training or induction, which may primarily benefit the business itself.
Drafting training clawback provisions
To reduce risk, employers should ensure that clawback provisions:
clearly define the training covered;
exclude mandatory onboarding and general induction;
are limited to demonstrable costs;
include a fair sliding scale and reasonable time limits; and
include appropriate exceptions where the employer brings the employment to an end or where recovery would be unreasonable.
Conclusion
Geeks v Watts provides a clear warning that broad, one-size-fits-all training fee clawbacks risk being unenforceable. Employers should ensure that repayment provisions are proportionate, evidence-based and closely connected to the legitimate costs and interests they are seeking to protect. If you have any questions about training fee clawbacks or would like to discuss your approach, please get in touch and one of the team will be happy to help.
