The Court of Appeal has upheld an appeal by a former employee of an IT services company against an order that he reimburse his employer for training costs, ruling that the contractual provisions allowing the employer to claw back those costs amounted to an unlawful restraint of trade.
In addition to his contract of employment, the employee had entered into a separate training contract which stated that his employment would start with a six-month training period. The cost of the training period, which was calculated at £8,108, would be written off at a rate of 1/18th for each month he remained employed after completing 12 months’ employment. If his employment ended before the debt was completely repaid, he would be liable to repay the outstanding amount.
Eight months after his employment had begun, he resigned to take up employment with another firm at a significantly higher salary. The employer commenced proceedings to recover the £8,108. He alleged that the relevant terms of the training contract were unenforceable as they constituted an unlawful restraint of trade.
A Deputy District Judge held that although the clawback provisions amounted to a restraint of trade, they protected a legitimate interest of the employer, namely retaining employees it had invested in training. They did no more than was reasonable to protect that interest. The employee’s appeal against that decision was dismissed by a Circuit Judge.
Ruling on the employee’s further appeal, the Court considered that the clawback provisions plainly engaged the restraint of trade doctrine. On the assumption that they might be justified if they went no further than reasonably necessary to protect the employer’s legitimate interest in maintaining a stable trained workforce, the Court turned to whether that test was satisfied.
The Court observed that, even if the calculation of time spent on being mentored or on study and practice activities – about one and a half hours per day – were correct, that left the greater part of the working day unaccounted for, as if during that time what the employee was doing could be treated as effectively of no value to the employer. That was highly artificial if, as the evidence indicated, the company’s clients were being billed for his services.
There were two reasons that led the Court to the conclusion that the clawback provisions were unreasonable and unenforceable. The first was that they applied whatever the reasons for the employee’s departure, with the single exception of redundancy: whether he was dismissed or left voluntarily, and irrespective of whether he left for a job in the technology sector or not, with or without a salary increase. The second was that their effect was that the employee, who had been paid not much more than the National Minimum Wage, was reduced in retrospect to the equivalent of an unpaid intern in the early months of his employment. The Court could not accept that they went no further than reasonably necessary to protect the company’s legitimate interest. The appeal was dismissed.