This article was first published by the International Employment Lawyer on 19 August 2026.
In July 2026, the Court of Appeal handed down its judgment in Geeks Limited v Watts, considering for the first time whether a training cost clawback provision was void in restraint of trade.
The case raises significant issues about restraint of trade in employment contracts generally, in particular, indirect restrictions which do not restrict any competitive activity as such but rather promote retention by making it more difficult or financially disadvantageous for the employee to leave.
Clawback clauses in employment contracts have become increasingly common. Repayment or forfeiture provisions can be triggered when employees leave within a certain period of the receipt or award of bonuses, incentives, or benefits.
The doctrine of restraint of trade is also familiar, particularly in the context of post-termination restrictive covenants (ie, “non-competes”). The key principle is that a provision in restraint of trade is void and unenforceable unless it protects the employer’s legitimate business interests and goes no further than reasonably necessary with reference to the interests of the parties and the public interest.
What happened in this case?
Geeks is an IT services company that recruits staff with little or no prior technical knowledge. In March 2019, Joseph Watts joined as a trainee quality assurance engineer on a starting salary of £18,000 per annum. When he joined, he signed an employment contract and a separate training contract containing clawback provisions obliging him to repay £8,108, said to represent the cost of his training.
Repayment was structured in two ways, either through time in service where after a year, the amount owed would be reduced by 1/18th per month and eventually be written off or repayment on termination. In that scenario, Watts was obligated to pay the remaining balance on the training loan in monthly instalments of the original sum. A 5% discount applied if he repaid a lump sum within ten days of termination.
Watts resigned after eight months and secured a new role at a higher salary. The employer brought a claim to recover the £8,108. Watts argued the clawback provisions were an unreasonable restraint of trade and therefore unenforceable.
The employer was initially successful. Watts appealed to the Court of Appeal.
The Court of Appeal’s decision
The court held that the clawback provisions did engage the restraint of trade doctrine, confirming that financial disincentives to leaving employment are not automatically exempt from scrutiny.
The key question is whether, viewed at the time the contract was made, the provision will or may have the effect of hampering the employee’s ability to trade freely. This is a question of substance, not form.
The court also acknowledged, however, that not every provision leading to the forfeiture of a benefit upon leaving will amount to a restraint of trade. For example, the court stated that a clause providing that the payment of commission is subject to a condition of continuing employment which does not otherwise restrict the employee’s freedom to take up other employment will not be an unlawful restraint of trade.
It worked on the assumption that employers have a legitimate business interest in “maintaining a stable, trained workforce” but noted, however, that while this was identified in case law some 33 years ago, it has not since been defined.
Reasonableness – the decisive issue
The court applied the following principles:
- Burden of proof: it is for the employer to demonstrate that the clause is reasonable and goes no further than necessary to protect its legitimate interests.
- Absence of independent legal advice :although not conclusive, this was a relevant factor pointing away from reasonableness. There was a recital in the contract that the employee “had the opportunity to obtain legal advice”, which the court stated was “neither here nor there”.
- Inequality of bargaining power: this can be highly significant, particularly in employment contracts at relatively low wages.
- The reasonableness of the clause has to be viewed as at signing and without the benefit of hindsight. The fact that Watts obtained a higher salary in his next role was irrelevant.
- Instalment structure: Structuring repayment as monthly instalments rather than a lump sum was a point in the employer’s favour.
The court identified two reasons in particular for concluding that the clawback provisions were unreasonable and unenforceable.
Firstly, the provisions applied whatever the reason for Watts’ departure (except redundancy). For example, they applied on dismissal with one week’s notice, not only on voluntary resignation, and irrespective of whether he moved to a competitor, or left for entirely personal reasons such as to become a carer.
Watts was paid little more than the national minimum wage when hired. On that basis, the court then found the effect of the clawback provisions in the initial months was to reduce him to the equivalent of an unpaid intern, with a loan repayable over a significant period of time. This could not, in the court’s view, be accepted as reasonable or necessary to protect the employer’s legitimate interest in maintaining the stability of their trained workforce.
The court also expressed serious reservations about the £8,108 figure itself, which in part was based on costing mentor time at £60 per hour – when the actual mentor was paid a fraction of that rate.
Practical lessons for employers
Do not assume that a clawback clause is simply a contractual debt that will be enforced without question. Financial disincentives to leaving employment can engage the restraint of trade doctrine and be subject to scrutiny.
Employers should also ensure they are in a position to justify any clawback provisions, not only by identifying the legitimate interest(s) they are seeking to protect, but also with reference to the reasonableness of the terms in the circumstances when the contract is signed.
Businesses should consider reasonableness on a case-by-case basis.
Key issues to examine include inequality of bargaining power as clawback clauses imposed on lower-paid employees will face greater scrutiny than those agreed with senior, well-remunerated staff.
Repayment triggers under any such provisions should also be carefully considered. Excluding redundancy is common, but this case suggests that this alone will not be sufficient.
Courts will also review how any repayment is structured when weighing up reasonableness. Watts’ contract provided he repay the debt in instalments rather than a lump sum, which helped Geeks’ reasonableness argument. A reducing scale – so that the amount repayable decreases the longer the employee remains – is also advisable.
Encouraging employees to seek independent legal advice before signing clawback provisions, for example by offering a contribution towards legal fees, could also assist.
Employers would also be wise to ensure that the calculation of the recoverable sum is justifiable. Any provision that could have the effect of putting the employer in breach of the National Minimum Wage (NMW) rules should be avoided.
With substantial NMW increases in recent years, and stricter enforcement provisions now being policed by the Fair Work Agency, this has become a high-risk issue for employers in which inadvertent breaches can easily occur.
In light of this important judgment, employers should review any existing clawback provisions in their employment documentation, and assess whether they are reasonable, proportionate, and structured in a way that would withstand scrutiny.
The Geeks v Watts decision is a timely reminder that poorly drafted clawback provisions can create significant legal and financial risk for employers. To discuss whether your employment contracts and training repayment arrangements are fit for purpose, please contact our employment law specialists.
