Can training repayment clauses be considered an unreasonable restraint of trade? The Court of Appeal confirmed that these clauses may be unenforceable if they go beyond what is reasonable to protect an employer’s legitimate business interests in Geeks Ltd v Watts.
Facts
Watts joined Geeks Ltd as a trainee IT engineer in 2019. His salary was £18,000 per year and, as part of his contract, Watts was expected to pay £8,108 to Geeks to cover training costs if his employment terminated for any reason other than redundancy. The debt would not begin reducing until Watts completed 12 months of employment.
When Watts left after 8 months for a better paid job, Geeks sought repayment of the full amount in accordance with his contract.
Restraint of Trade Doctrine
The restraint of trade doctrine is a common law rule providing that contractual terms limiting a person’s freedom to carry on trade or work are void, unless they are protected by a legitimate business interest and are reasonable in scope, time and geography. This was considered by the Court of Appeal on the facts of this case.
Outcome
In summary, the Court of Appeal held that the substantial financial liability Watts took on could discourage him from leaving Geeks, and as a result, restricted his freedom to work elsewhere. The size of the debt in comparison to Watts’ salary created a disproportionate consequence that would deprive Watts of almost 6 months earnings.
Additionally, the Court of Appeal found the wording of the clause to extend further than reasonably necessary to protect Geeks’ legitimate business interests. The clause applied to all other reasons for Watt’s employment ending except redundancy, whether it affected the company’s business interests or not, ranging from joining a competitor to a complete change of career.
Consequence
The Court of Appeal’s decision on this case highlights the fact that clauses do not need to directly restrain an employee from working elsewhere for the restraint of trade doctrine to apply. Financial disincentives can amount to unreasonable restraints if they go further than necessary to protect a business interest.
Employers must also consider the extend any restraint clause applies. Applying a clause too broadly (as in this instance, to any reason for the employment ending other than redundancy) may bring it within the scope of the doctrine. Employers must ensure their contractual restraints not go further than reasonably necessary to protect a legitimate business interest or they’ll risk such clause being unenforceable.
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