Thankfully, we employees are no longer ‘slaves’ to our ‘masters’. Instead, we are normally free to ply our trade wherever (and for whomever) we so wish. If we want to leave one job to take up new employment elsewhere, we cannot normally be prevented from doing so. Contract clauses which seek to prevent a departing employee from working for a competitor (or poaching clients, employees or suppliers) require careful drafting. They must go no further than is reasonably necessary to protect the employer’s legitimate business interests. If they are found to be excessive, they are likely to amount to an unenforceable ‘restraint of trade’, running contrary to public policy. 

Most businesses are aware of the limited enforceability of ‘traditional’ post-termination restrictions. But what about other clauses which might, in practice, limit an employee's ability to move freely from one employer to another? 

What about ‘clawback’ clauses?

In the case of Geeks Ltd v Watts, Mr Watts was employed as a trainee quality assurance engineer. Geeks (his employer) initially met the cost of his training.  However, Mr Watts was required to enter into a training contract, which obliged him to repay a sum of as much as £8,000 if he left his employment within the first 2½ years. When Mr Watts moved to a new job after only 8 months, Geeks claimed it was entitled to a repayment of the full £8,000.

Geeks issued legal proceedings against Mr Watts and was initially successful in the County Court. However, when the case was appealed to the Court of Appeal (CA), the CA accepted Mr Watts’ argument that the repayment clause had (or might have had) the practical effect of hampering his ability to freely move from one job to another. The CA took account of the wide variety of circumstances in which the clawback provision applied and the sheer size of the sum to be repaid (particularly in the early months of Mr Watts’ employment). The CA also noted the inequality in bargaining power between employer and employee and the fact that Mr Watts had no opportunity to take independent legal advice when entering into the contract. All in all, the clawback provisions were found to be unreasonable and unenforceable, so Mr Watts did not have to repay the money. 

What does all this mean?

The Geeks v Watts decision does not inevitably mean that all ‘clawback clauses’ are unlawful. However, it strongly suggests that employers who require their employees to enter into training agreements (or other arrangements involving repayment of significant sums on termination of employment) need to think carefully about the restrictive nature of those arrangements. If they are likely to curtail an employee's ability to freely leave their employment to take up an alternative role elsewhere, such restrictions are likely to require more careful thought.

Want to talk?

If you would like us to review your arrangements in light of the Geeks v Watts case, please get in touch.