Training cost repayment clauses are used by employers seeking to protect the investment made in developing employees’ skills. However, such provisions are subject to important legal constraints and can be difficult to enforce if drafted too broadly.
The Court of Appeal’s recent decision in Geeks Ltd v Watts provides valuable guidance on where those limits lie. In this case, the Court considered whether an employer could recover £8,108 in training costs from a trainee engineer who resigned after only eight months of employment on an annual salary of £18,000. It refused to enforce the repayment clause.
The decision is an important reminder that, while well-drafted training cost recovery provisions remain enforceable in principle, they are subject to clear legal limits. Employers should review existing agreements to ensure they remain compliant.
The legal framework remains unchanged
The decision does not alter the fundamental legal principles governing training cost recovery.
There is no automatic right for an employer to recover training costs. Under s13 of the Employment Rights Act 1996, deductions from wages are unlawful unless they are:
- authorised by statute;
- permitted by the employee’s contract; or
- agreed to by the employee in writing before the deduction is made.
Where employment has ended and there are insufficient wages from which to make a deduction, the employer must instead rely on a clear contractual right to recover the costs.
Accordingly, employers should ensure that any repayment obligation is documented in writing before the training takes place. A standalone training agreement remains best practice, identifying:
- the specific training to be provided;
- the costs to which the repayment obligation applies; and
- the circumstances and method by which repayment will be calculated.
The limits of enforceability
Properly drafted repayment provisions can be enforced. In Neil v Strathclyde Regional Council, a clause requiring repayment of training costs on a reducing scale over two years was upheld because it reflected the employer’s genuine financial loss.
However, recovery is unlikely to succeed where:
- the repayment amount is disproportionate to the employer’s loss (and therefore constitutes a penalty);
- the drafting lacks sufficient certainty; or
- the alleged training costs do not relate to genuine training, as illustrated in MBL (GB) Ltd v Quigley.
What Geeks Ltd v Watts adds
The significance of Geeks is that the repayment provision failed not because it was a penalty, but because it amounted to an unreasonable restraint of trade.
The Court accepted that a substantial financial liability may deter an employee from changing jobs, even where the clause does not expressly prevent them from doing so. As a result, such clauses may engage the doctrine of restraint of trade and must therefore be justified as reasonable in protecting the employer’s legitimate business interests.
On the facts, the employer was unable to justify the clause.
Why the clause failed
The Court identified two principal difficulties with the repayment provision.
- The clause was too broad
The repayment obligation applied:
- regardless of how employment ended, other than redundancy;
- to training undertaken during the previous 18 months; and
- on a repayment schedule that reduced by only 1/18th per month, and only after the first year.
Taken together, these features created a substantial and prolonged financial disincentive to leaving employment.
- The ‘training costs’ were artificially calculated
The Court was also critical of the costs said to be recoverable. These included:
- mentoring charged internally at £60 per hour, significantly exceeding the mentor’s actual remuneration; and
- 100 hours attributed to the trainee’s own salaried study and practice time.
The Court regarded these figures as highly artificial, particularly as the employer had already been billing clients for the trainee’s work.
The judgment serves as a warning that employers should not seek to reclassify ordinary supervision, induction, onboarding or day-to-day support as recoverable training costs. Attempting to recover ordinary employment costs under the guise of training expenses may render a repayment clause unenforceable.
- The National Minimum Wage considerations
The Court also observed that enforcing substantial repayment obligations against low-paid employees may undermine the purpose of the National Minimum Wage legislation.
In this case, requiring repayment would have had the practical effect of reducing the value of the trainee’s work to something approaching unpaid labour. Employers should therefore ensure that deductions for mandatory training do not reduce pay below the National Minimum Wage.
Practical drafting points
Employers should review existing training repayment provisions in light of the decision. In particular, they should ensure that agreements:
- apply only to genuine, identifiable training costs;
- are supported by objective evidence, such as invoices or other records of expenditure;
- include a reasonable sliding scale that reflects the diminishing value of the training over a proportionate period;
- exclude departures outside the employee’s control, rather than limiting exclusions to redundancy alone;
- produce repayment sums that are proportionate when considered alongside the employee’s salary and the National Minimum Wage; and
- are agreed in writing before the training commences.
Members of HR Inner Circle can access a Repayment of Training Fees Agreement, updated to take account of the Court of Appeal’s decision in Geeks v Watts, in the templates section of the Vault.