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Case Study
This is a really important case concerning whether departing staff can be required to repay training costs under the terms of their contract. The decision comes from the Court of Appeal, making it one that employers should take note of, although there remains the possibility of a further appeal to the Supreme Court.
In the case of Geeks Limited v Watts, the employer sought to claw back training costs when an employee left the business. Such arrangements are common and are often used by employers to protect the investment they make in training new staff.
The employee had signed both a contract of employment and a separate training repayment agreement when he started work as an IT engineer. The agreement provided that the costs of training him over a six-month period would be recoverable if he left employment before the debt had been repaid.
The amount in question was approximately £8,000, while the employee’s salary was around £18,000 per year. The agreement was structured so that the debt only began reducing after the first year of employment and then reduced on a monthly basis thereafter.
After eight months’ service, the employee left to take up a higher-paid role elsewhere. The employer sought to recover the training costs and was initially successful in the County Court. The case was then appealed to the Court of Appeal.
Case Study
The Court of Appeal found that the training repayment provisions amounted to a restraint of trade and that, even if the employer had a legitimate interest to protect, the restriction went further than was reasonably necessary.
As a result, the repayment clause was held to be unenforceable.
In reaching that conclusion, the Court relied on two key points.
First, the repayment provisions applied regardless of the reason for the employee’s departure, except in cases of redundancy. It did not matter whether he was moving to another employer in the same sector, joining a completely different industry or leaving work altogether.
Secondly, the Court considered the financial effect of the arrangement. The employee earned only slightly more than the National Minimum Wage, yet remained liable to repay approximately £8,000. The Court considered that the practical effect of the arrangement was that the employee had become the equivalent of an unpaid intern, albeit with a loan repayable over time.
In those circumstances, the Court concluded that the repayment provisions did not go further than was reasonably necessary to protect the employer’s interests and were therefore unenforceable.
It is important to remember that every case turns on its own facts and this judgment does not mean that training costs can never be recovered from departing employees.
However, employers should carefully review any training repayment provisions to ensure they are reasonable and proportionate. In particular:
Whilst employers can still seek to recover costs which represent a genuine investment in employee development, this case demonstrates that repayment provisions must be carefully drafted and no more restrictive than is reasonably necessary to protect the employer’s legitimate interests.
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If you would like advice on the enforceability of training repayment clauses or would like your existing employment contracts reviewed in light of this decision, call 01332 226 138 or complete the form below and a member of our Employment team will be in touch.
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