When Training Bills become unlawful restraints: Warnings from UK caselaw

Employers investing in inexperienced workers have reason to be concerned, as clauses requiring repayment of training costs may be open to challenge at common law.

Known as “clawback clauses”, it is common for employers to include terms in an employment contract requiring employees to repay costs associated with their engagement, for example, training and education, the provision of specific equipment, and relocation or visa costs.

These provisions are already contentious and must be drafted to comply with Australian laws on unlawful deductions.They may now face a new kind of difficulty, with a UK appellate court finding that these terms may fall within the restraint of trade doctrine.

The recent decision of Geeks Ltd v Watts [2026] EWCA Civ 889 is a novel development in its own jurisdiction.It also offers a useful cautionary tale for Australian employers whose clauses could be held unenforceable.

Mr Watts started work at Geeks in March 2019 as a Quality Assurance Technician. His role also involved helping to build and maintain software for clients. His starting salary was £18,000.

Mr Watts signed two agreements: an employment contract allowing Geeks to recover the cost of any formal training received in the previous 18 months if his employment ended; and a training agreement estimating training at £8,108, repayable either by remaining employed (with the amount reducing monthly after 12 months) or by fixed repayments if he left.

Within his first year, Mr Watts asked for a pay rise. Geeks refused. He then resigned and took a similar role elsewhere.

Geeks sued Mr Watts to recover the training costs, on the basis that he had breached the agreements. Mr Watts argued that the repayment terms were unlawful because they unfairly restricted his ability to work elsewhere.

At trial, Geeks won. The judge decided that the repayment terms reasonably protected Geeks’ business interests and did not go further than needed. The judge also considered that there was no meaningful imbalance in bargaining power, that Mr Watts could afford the repayments, and that the terms discouraged employees from using Geeks’ training to move quickly to a better-paid job elsewhere.

This article was co-authored by Joshua Handley, Knowledge Counsel in our Sydney office.

An initial appeal made by Mr Watts failed.

On further appeal, the Court of Appeal allowed Mr Watts’ appeal. The Court reasoned:

• The repayment terms did restrict Mr Watts’ freedom to work. The Court made clear that a financial penalty for leaving a job can be scrutinised as a restraint of trade. Bean LJ put it this way:

… It is right to say that most of the traditional authorities concern express restrictions on where and/or for whom the employee can work on termination of the contract, what clients or customers he can or cannot deal with or solicit; whether he can entice fellow employees to leave and so forth. But financial disincentives are not exempt as a class from scrutiny under the restraint of trade doctrine.

• A restraint will only be enforceable if it protects a legitimate business interest and goes no further than reasonably necessary.
• Geeks’ legitimate interest in recovering training costs was accepted, but the repayment terms went too far because they:
  • applied no matter the reason Mr Watts left his employment, including non-competitive reasons;
  • were capable of effectively reducing his already modest pay to something closer to an unpaid or low-paid internship; and
  • were applied to an entry-level job in a strong labour market, so replacing Mr Watts was unlikely to threaten the stability of Geeks’ workforce.
• The Court also queried how Geeks had calculated the amount it sought to recover. The repayment figure appeared to include time when Mr Watts was doing productive work for the business, suggesting that Geeks was seeking to recover more than its actual loss.

Geeks is not binding on Australian courts and Australian restraint of trade law has developed separately from UK law for some time.

Even so, the principles share common roots. There is broad overlap in how courts in both countries consider the restraint of trade doctrine. Australian courts often consider UK authorities and it is possible an Australian court could adopt the reasoning in Geeks if a similar dispute arises here.

That said, these cases are highly fact specific and turn on wording and circumstance. Differences in the drafting of a clawback clause, or the employee’s circumstances, may well lead to a different outcome.

We also note in NSW, the Restraint of Trade Act 1976 materially changes the test for enforceability. The considerations in Geeks could have been entirely different if the case had been decided under NSW law.

Key takeaways

• UK courts have scrutinised training‑costs clawbacks as potential restraints. Australian courts could reach a similar view on the right facts.
• Repayment terms should protect a real business interest and go no further than necessary.Draft contract clauses with the reason for leaving, the amount claimed, and the employee’s circumstances in mind.

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This article was co-authored by Joshua Handley, Knowledge Counsel in our Sydney office.

The views expressed in this article are general in nature only and do not constitute legal advice. Please contact us if you require specific advice tailored to the needs of your organisation.

Photo by Andres Vera on Unsplash