Employers often require repayment of certain costs if an employee departs - common examples include training course fees, immigration fees, and enhanced family leave pay. Repayment provisions can also extend to far higher sums in respect of bonus arrangements.

Where restraint of trade principles are deemed by a Court to apply, the arrangements in question will be unenforceable unless they protect a legitimate business interest and go no further than reasonably necessary in the circumstances.

A recent Court of Appeal decision considered whether an agreement requiring repayment of internal training costs amounted to an unreasonable restraint of trade.

We summarise the decision and consider what it may mean in practice for employers when sums must be repaid, or a benefit forfeited, on termination of employment.

What happened here?

Mr Watts joined Geeks Limited as a trainee quality assurance engineer in March 2019, on a starting salary of £18,000 (rising to £22,000 by his third year).

His contract allowed Geeks to recover the cost of any formal training course or conference undertaken in the 18 months before his employment ended, save on grounds of redundancy, reducing by 1/18^th for each month worked following the training.

Mr Watts also signed a separate training contract providing for a six-month training period covering technologies, methods, leadership and mentoring practices.

The training contract set out a “Training Cost Debt” of just over £8,000, which was “the estimated financial cost” of supporting Mr Watts in his trainee role. This debt was made up of the following internal costs:

• Mentoring costs: the cost of a mentor, at a rate of £60 per hour, for a defined period.
• Employment costs: for “study and practice activities”, based on 100 hours of Mr Watts’ wages calculated at £13 per hour.

Mr Watts could repay the debt in one of two ways:

• Remaining employed: after one year, the debt reduced by 1/18^th for each month of full-time employment, treated as fully repaid after 2.5 years.
• Financial repayment: if employment ended before the debt was “worked off”, the balance was repayable in monthly instalments, with a 5% discount if paid in full within 10 days of leaving.

Mr Watts resigned after eight months for a better-paid role (£30,000), and Geeks sued for the claimed debt.

Geeks succeeded in the County Court, before the Court of Appeal granted permission for appeal.

The appeal considered whether Geeks had a legitimate interest justifying the arrangements relied upon, whether it went further than reasonably necessary, and, as an additional ground, whether the provisions were a restraint of trade at all.

What did the Court of Appeal think?

The Court of Appeal agreed the repayment provisions were a restraint of trade pursuing a legitimate aim but did not consider them a proportionate way of protecting it.

Financial disincentives such as repayment agreements are not exempt from the restraint of trade doctrine - the question is one of substance, not form. Although the agreement did not prevent Mr Watts from leaving, it impeded his ability to move jobs considering his financial situation.

Geeks argued that the provisions were a pre-termination clause rather than a post-termination restriction, applying regardless of whether Mr Watts stayed or resigned, so the doctrine should not apply. The Court of Appeal disagreed: this was an indirect restraint taking effect once Mr Watts left and accepting Geeks’ argument would, in effect, let an employer require a junior employee to repay their salary for a period of “training” without any ‘reasonableness’ safeguard, undermining minimum wage protections.

Having decided the provisions acted in restraint of trade, the Court of Appeal went on to consider reasonableness.

• The Court of Appeal accepted Geeks had a legitimate interest in maintaining a stable, trained workforce.
• However, the agreement went further than reasonably necessary. Allowing repayment by instalments was an improvement on a lump sum, but the Court of Appeal still considered the provisions unreasonable because:
• They applied regardless of the employee’s reason for leaving (other than redundancy), whether moving to a better-paid role or resigning for unrelated personal reasons; and
• The clawback’s effect in the early months was to retrospectively reduce Mr Watts’ salary to something closer to unpaid work, going further than necessary to protect Geeks’ legitimate interest.

Mr Watt’s appeal was therefore allowed, meaning Geeks could not recover the sum in dispute.

Practical considerations

Repayment of salary

The facts here were extreme, and it’s unusual to see a provision that effectively requires a trainee to repay sums which would have such an extreme impact on a relative basis. The Court’s reasoning suggests that a clause requiring repayment of salary, in whole or part, is likely to engage the restraint of trade doctrine and require a reasonableness assessment, as illustrated by the Court’s example of a clause requiring repayment of an entire year’s gross salary - though whether the doctrine applies, and whether any particular clause is reasonable, will always depend on the specific facts.

Forfeiture of benefits

Separately, this decision may also have implications for arrangements that don’t involve salary repayment, such as clawback of bonus or commission payments, or forfeiture of unvested share options or other incentive awards.

The Court of Appeal was clear that not every forfeiture of a benefit on termination will be in restraint of trade. For example, requiring continued employment to earn commission is unlikely to be unreasonable.

A comparable point arose in Steel v Spencer Road LLP [2024] ICR 137, where the High Court held that a discretionary bonus repayable on resignation within three months was not a restraint of trade, as it did not restrict the employee’s ability to work elsewhere.

The Court of Appeal agreed with that outcome and noted that, even if the doctrine had applied, it would be surprising if that repayment agreement had been considered unreasonable. It left open how the doctrine might apply to other forfeiture arrangements, which will depend on the circumstances.

Checklist of key issues

Whether the restraint of trade doctrine is engaged, and if so whether any repayment or forfeiture arrangement can be justified, will always depend on the specific facts.

When drafting any repayment provisions (whether in an employment contract or a separate agreement) careful consideration is required to take account of potential issues with enforceability. Seek advice from your usual Lewis Silkin contact if you need support drafting any repayment agreement.

The checklist below recaps some of the key issues for employers to consider when preparing repayment agreements:

• Consider your legitimate aim: Geeks relied on maintaining a stable, trained workforce. Employers should identify their own legitimate aim, and consider setting it out expressly in the agreement.
• Consider proportionality: the decision highlights several factors relevant to whether an agreement goes further than reasonably necessary:
  • Cost calculations: the Court found Geeks’ £8,108 figure “highly questionable” and “artificial”. Costs should be capable of clear, evidenced quantification.
     
    Repayment agreements tied to demonstrable costs distinct from basic salary (for example bonuses, external training costs or immigration fees) may be less exposed, though this will always depend on the facts.
  • Termination events: consider what circumstances should trigger repayment - redundancy is a common carve-out, but employers should consider others, e.g. an employee leaving for a role which does not entail an element of competition.
  • Repayment method: instalment repayment was viewed more favourably than a lump sum; consider agreeing repayment plans upfront, particularly if the sum may exceed final salary.
  • Inequality of bargaining power: relevant factors include the employee’s role, salary, and whether the agreement was negotiated - the Court distinguished highly paid individuals with greater bargaining power.
  • Legal advice: not decisive, but the absence of independent legal advice weighed against reasonableness here. Consider requiring or encouraging this for larger repayment sums, and making clear that the individual has the right to take their own legal advice before agreeing the arrangements in question.
• Risk of employee claims: repayment disputes can also arise as unlawful deduction from wages claims in the Employment Tribunal. A clear contractual right to deduct is essential.

Employers should also be alive to the separate risk that a repayment provision may be considered as an unenforceable penalty, i.e. a detriment out of all proportion to the loss suffered. Ensuring repayment reflects a genuine pre-estimate of loss, using a sliding scale, and addressing bargaining power and legal advice as above, can all help mitigate risk. We consider the principles relating to penalty clauses here.

Geeks Ltd v Watts [2026] EWCA Civ 889, CA