Clawback Clauses: What Geeks Ltd v Watts Teaches Employers About Training Fee Clawbacks

Employers often use training fee clawback clauses in contracts to protect investments made as part of an employee’s training and development. Clawback clauses typically require an employee to repay some or all of the costs incurred by the employer, if they leave employment within a specified period.

For example, an employer could use a clawback clause to cover the cost of sending staff on training courses or to obtain qualifications.

Until recently, many employers assumed that repayment provisions would be enforceable as ordinary contractual debts, however, the Court of Appeal’s decision in Geeks Ltd v Watts (2026) EWCA Civ 889 has changed this perspective.

The judgment in this case confirms that training fee clawback arrangements are capable of amounting to a restraint of trade and, therefore, must satisfy the same tests that apply to enforcement of restrictive covenants.

Background

Mr Watts joined Geeks Ltd, an IT services company, as a trainee engineer in March 2019. His starting salary was £18,000 a year. On commencing employment, he signed both an employment contract and a separate agreement setting out a “Contract of Training Investment”.

Under this agreement, Geeks Ltd calculated a debt of £8,108, said to reflect the costs associated with mentoring, training and supporting Mr Watts during his initial employment.

The debt did not begin reducing until after 12 months’ service and would then reduce gradually over a further 18 months. If Mr Watts left before the debt had been worked off, for any other reason than being made redundant, the outstanding balance became repayable.

After eight months of employment, Mr Watts resigned to accept another role paying £12,000 more. Geeks Ltd sought repayment of the full £8,108, based on the training agreement and obtained judgment against Mr Watts in the County Court. Mr Watts appealed to the Court of Appeal.

The Appeal

The central question for the appeal was whether the repayment provisions constituted an unlawful restraint of trade of Mr Watts.

Usually, restraint of trade principles arise in the context of post-termination restrictions, such as non-compete clauses, non-solicitation provisions and non-dealing restrictions.

These clauses are enforceable only when they are protecting a legitimate business interest and go no further than is reasonably necessary to protect that interest.

Geeks Ltd in this case argued that the repayment obligation was not a contractual debt and did not restrict Mr Watts’ ability to leave employment. Mr Watts argued that the clawback agreement was to discourage him from leaving Geeks Ltd and, therefore, amounted to a restraint of trade.

The Court focused on the practical effect of the provision. A substantial repayment obligation can discourage an employee from leaving employment in the same way as a restrictive covenant and therefore the Court found it would fall within the scope of the restraint of trade doctrine.

As a result, the Court of Appeal held that the training fee clawback scheme was unenforceable and allowed Mr Watts’ appeal.

The Court accepted that employers may have a legitimate interest in protecting investments made in training employees, however, the Court found that Geeks Ltd’s clawback clause in this case went further that what was reasonably necessary for the following reasons:

1. Unless Mr Watts was made redundant – he was required to reimburse Geeks Ltd if he left the business within that 2.5 year window.

The repayment applied regardless of whether the employee resigned voluntarily, was dismissed or left for reasons unrelated to competition which the Court found to be disproportionate.

2. The value of the debt

The debt represented nearly 50% of Mr Watts’ annual salary. The Court considered that such a significant financial burden could realistically deter an employee from leaving and pursuing alternative employment opportunities.

3. The calculation of the debt

The training debt included mentoring costs charged at £60 per hour, substantially more than the employer’s actual cost. There was also evidence that Mr Watts’ work generated value for the business while he was being trained. This undermined the argument that the figure represented a genuine reimbursement of expenditure.

4. Unequal bargaining power

The Court acknowledged the disparity in bargaining strength between a trainee employee seeking entry into the industry and an established employer imposing the contractual terms.

What does the decision mean for employers who wish to include clawback clauses in employment contracts?

This judgment does not mean that all training repayment clauses are unenforceable. In fact, the judgment expressly recognised that employers can legitimately protect their investments using such clauses as long as they remain reasonable and proportionate.

What to keep in mind when drafting training cost clawback clauses?

1. The amount to be repaid should represent actual costs incurred by the employer – inflating an hourly rate as Geeks Ltd did is likely to be criticised as it appears that the employer is looking to deter the employee from leaving rather than recovering genuine loss.
2. The training cost clawback clause must be reasonable – for example, Geeks Ltd’s clawback clause reflecting a return of training fees amounting to almost 50% of Mr Watts’ salary.
3. It would also be beneficial to taper the debt over time to reflect the value received by the business for the employee’s input – in Geeks Ltd, Mr Watts was generating income by the work he was doing, not simply costing the business money – this could be reflected in the tapering of the debt.
4. Consider when repayment may not apply – in Geeks Ltd it was only relevant where an employee is made redundant, but what about in cases of ill health termination or constructive dismissal?

Clawback schemes should be proportionate and reasonable

The Court of Appeal’s decision in Geeks Ltd v Watts is an important for employers. It confirms that training fee clawback schemes may only be enforceable where they are proportionate and reasonably necessary. Clawback clauses should only be used to protect a legitimate business interest in situations where an employer can evidence genuinely incurred training expenses, rather than using these clauses as any sort of financial deterrent.

Considering the use of clawback clauses in your employment contracts? Get in touch with the AfterAthena team for support and guidance. We take the stress out of managing employee issues, providing expert employment law support that helps protect your business from unnecessary risk.