One of our employees recently left for a better job. Fortunately she gave us plenty of notice and we deducted the money we had spent on all her training for the past two years. She has complained that this is illegal and immoral and she will take us to court and or tribunal if we do not give her all of the money back. She signed a contract under which, in return for the time off and payment of course fees, she agreed to pay us an agreed amount if she failed to complete the course or to complete two years’ post-training employment with us.

Peter replies:

If an employee agrees that, in return for time off to undergo a formal course of training, he or she will complete a minimum period of post-training service, the employer may recover damages if the employee leaves before completion of the service. To recover monies from an employee for any reason, this should be included as an express contractual right and preferably with a separate ‘clawback’ agreement.

It is possible for an employee to claim that such a contract is illegal as an unfair restraint of liberty. To tie an employee so closely to his or her master that the relationship smacks of slavery is, of course, illegal but a reasonable contract of this kind is enforceable. An agreed damages clause which imposes a penalty out of all proportion to the loss anticipated is unenforceable. But where the damages clause is a genuine pre-estimate of its actual loss, it is likely fair and enforceable.

An employer may want to recover money from a former employee in a variety of situations. If you wish to recover money in these or similar circumstances you need to bear two things in mind:

  1. An express agreement with the employee is critical, and care needs to be taken when drafting such agreements.
  2. Getting it wrong means that recovery may, in practice, be impossible.

Whether a clause is enforceable will depend on whether it is a genuine attempt to estimate the loss caused by the breach. If not, it will be a penalty.

Relevant factors include:

  • Whether the sum claimed is significantly greater than the largest loss that could have been caused by the breach.
  • Whether the clause is designed to stop one party from breaching the contract, rather than compensating the other for loss caused by a breach. Keep a note of the reasons for including the clause so that it can be justified if challenged.
  • If the same amount is payable regardless of the severity of the breach, it is more likely that the clause will be a penalty.

Your problem is that the position may be difficult if the employee has to repay the full amount, regardless of how much of the two years she had worked. Such a clause would have been more likely to be a penalty, because it would not have reflected the severity of the breach. Proportionality is an important factor in enforceability. If it was shortly after the course, you may be able to convince a judge that it was fair notwithstanding being badly worded, but it would be unwise to rely on this.

You should therefore be talking to the ex employee about agreeing a reasonable arrangement bearing in mind that you have had some benefit from the training. You should also be re-drafting any other agreements to taper the amount to be repaid depending on when within the two years the employee leaves. A clause which is significantly limited in time and possibly one which provides for a sliding scale of recovery; ought to stand the test of reasonableness.

The guidance provided in this article is just that – guidance. Before taking any action make sure that you know what you are doing, or call us for specific advice.