Employers often put provisions in contracts of employment requiring an employee to repay sums which the employer has spent on behalf of that employee. A common example is a requirement to repay the costs of a training course if the employee leaves their employment. Usually, these provisions operate for a fixed period, for example 12 months from completion of the course, and frequently the level of repayment is on a sliding scale, for example 100% repayment if they leave within 3 months of the course finishing, 75% if they leave between 3 and 6 months of the course finishing and so on.
These types of provisions are perfectly lawful and enforceable, provided that they are reasonable and do not operate in restraint of trade. For example, if an employer required repayment of a training course fee if the employee left their employment within 5 years of the end of the course, then that would almost certainly be unenforceable as it arguably would prevent, or at least penalise, the employee for leaving their employment.
Repayment clauses are frequently linked to a provision in the contract allowing the employer to deduct any sums from any wages owed to the employee. This is done so as to avoid the limitations on an employer’s ability to deduct sums from an employee’s wages contained in the Employment Rights Act 1996.
In the recent case of Cleeve Link Limited v Bryla  the Employment Appeal Tribunal had to consider whether a repayment provision amounted to a penalty clause. Penalty clauses are provisions in a contract which provide for a sanction to be imposed on a party to the contract where that sanction is not a genuine pre estimate of the loss suffered by the other party. For example, if an employer provided that an employee would have to pay a sum of £5,000 if they resigned from their employment without giving the required notice, that provision would almost certainly be a penalty clause, and as such be unenforceable. In Cleeve Link, the employer had paid fees to a recruitment agency in Poland, and also paid the employee’s air fare. The contract provided that these costs could be recovered in full if the employee’s employment ended within 6 months of her starting the employment, with the amount of the repayment reducing over a period of time after that. Mrs Bryla was dismissed after 12 weeks. At the time she was owed just over £1,200. The employer deducted the entire sum with the result that she was paid nothing. Mrs Bryla brought a claim in the Employment Tribunal claiming an unauthorised deduction of wages.
In the Employment Tribunal, the Employment Judge held that the clause was not a genuine pre estimate of loss, but was a penalty clause. As such, he held that the employer had no right to deduct the sum from Mrs Bryla’s pay. The employer appealed to the Employment Appeal Tribunal (EAT).
The EAT overturned the decision. They said that the sums deducted were a genuine pre estimate of loss at the time the contract was entered into. The employer had also argued that the contractual provision relating to penalty clauses had no place in the context of a statutory employment claim for an unauthorised deduction of wages, i.e. if the right to deduct was in the contract, then the Employment Tribunal should not look any further. The EAT disagreed. They held that you initially had to determine whether the sum was properly due, and only if it was did the statutory right to deduct wages come into play.
The EAT also provided guidance as to when a repayment clause may be enforceable. They said that the starting point is to look at the contract when it was entered into. The Employment Tribunal must then decide, objectively, whether the purpose of the clause was to deter the employee from leaving or whether it represented a genuine pre estimate of loss. The answer to this question may involve a comparison between the amount stated in the clause and a realistic figure the employer might recover. If the difference is “extravagant” or “unconscionable”, then the clause is likely to be unenforceable.
This case illustrates the complexity behind what appears to be a straightforward repayment provision. Employers should ensure that any repayment provisions are reasonable and likely to be enforceable, and if they have any doubt as to the drafting of these clauses, should take specialist advice.
If you would like to talk through a situation you are dealing with, or if you need advice on any aspect of employment law, please contact any member of the Pure Employment Law team (01243 836840 or [email protected]).