Geeks Limited v Joseph Henry Watts

The case concerns the enforceability of a “training fee clawback scheme” in the defendant’s contract of employment. It raises issues of significance about restraint of trade in the context of contracts of employment.

The Appellant (‘Mr Watts’) appeals against the order of Her Honour Judge Evans-Gordon dated 14 January 2025 which followed a hearing at Central London County Court on 13 November 2024 of an appeal by Mr Watts against an order of Deputy District Judge Barnaby Hope (“the DDJ”) dated 3 August 2023 (the ‘Trial Order’) after a trial at the County Court at Kingston-upon-Thames on 13-14 July 2023. In the Trial Order, Mr Watts was ordered to pay £8,108 plus interest to the Respondent Geeks Ltd, pursuant to certain provisions in a “Contract of Training Investment” entered into by Mr Watts and Geeks on 15 March 2019.

Geeks is a company based in Sutton which, as its name suggests, provides IT services to clients. It employs quality assurance technicians (‘QAs’) who are contracted to build and maintain clients’ software.

In 2019, Mr Watts applied for a job as a trainee QA engineer at Geeks. He had studied music at university, was living in considerable debt, and had applied for more than fifty positions in the IT industry by the time he applied to Geeks.

On 15 March 2019, Mr Watts entered into two agreements with Geeks.

The first agreement was the Employment Contract. Under the Employment Contract, Mr Watts was hired as a ‘QA Engineer / Tester (Trainee)’ by Geeks from 18 March 2019. His salary was set at £18,000 for his first year of employment, increasing to £20,000 and £22,000 per annum in his second and third years of work respectively.

Clause 8.10 of the Employment Contract stated the following under the section ‘Termination of Employment’:

“Upon termination of employment, the Company however maintains the right to recover the cost of any formal training course or conferences that you attend or undertake at the Company’s expense in the 18 months preceding the termination of your employment. The Company will pay for such formal training courses or conferences as a career development loan. Should your employment come to an end other than by means of a Company-instigated reduction in workforce you remain liable for the return to the Company of fees incurred for such training course or conference, and the cost of any course materials which have been incurred by the Company as a consequence of your participation in the training courses or conferences. This will be calculated at the full cost to the Company less 1/18th for each full month following the completion of the course or training.”

A separate section of the Employment Contract, section 17, dealt with ‘Restrictions following Termination of Employment’. It contained restrictive covenants of a common kind, such as a restriction on employment during a period of two years with certain of Geeks’ clients.

The second agreement was the ‘Contract of Training Investment’ (the ‘Training Contract’.) The Training Contract stated that Mr Watts’ position at Geeks would start with a six-month training period which covered ‘[l]earning the technologies, methods, technical architectures, technical leadership and mentoring practices’. The Training Contract stated that: ‘You have agreed to meet the Training Cost Debt that is the estimated financial cost of supporting you in this position’. The Training Cost Debt was calculated with reference to the ‘Training Cost Calculations’, which had a number of components.

“The first listed item was the cost of a mentor at a rate of £60 per hour mentoring for one hour per day for 19 days per month during the first two months (£2,280) and half an hour a day in the next four months (another £2,280)”

Next was 100 hours of ‘Employment Cost’ during the following 5 months spent on ‘Study and Practice Activities’ at £13 per hour (£1,300).

The total Training Cost Debt was calculated to be £8,108 (curiously £2 less than the total of the listed sums), albeit that the Training Contract specified that calculation of the sum was ‘not designed to capture all the cost to the business, some of which are measurable… some of which are immeasurable… Therefore, the above table is rather a basic calculation to reach an appropriate figure… rather than a precise appraisal of the full cost to the business.’

The Training Contract specified that ‘You agree to repay [the Training Cost Debt] via one or a combination of the following repayment methods.’

The first method was ‘by work contribution’: ‘Once you have worked for 12 months, in consideration of the benefits of your employment to the Company the Training Cost Debt will be written off and deemed repaid by 1/18th per subsequent complete month of full-time employment until it reaches zero.’

The second method was by ‘monetary payment’: ‘If your employment ends prior to complete repayment of your debt, you will pay the outstanding sum with monthly amount [sic] equal to 1/18th of the original Training Cost Debt until paid in full. Alternatively, if you pay the full outstanding balance within 10 days of your employment termination we will offer you a discount of 5% on the outstanding balance.’ The relevant section went on to state ‘for avoidance of doubt’ that Mr Watts would not be in breach of contract if he determined not to work for Geeks after any period of time, and that ‘Nothing in [the Training Contract] is intended to restrict you from pursuing other employment or trading opportunities.’ The first of these clauses appears to have been designed to defeat any invocation of the laws on penalties, and the second an attempt to defeat, or at least weaken, any argument about restraint of trade.

Under the heading ‘Remuneration and negotiation’, the Training Contract stated that ‘You understand that as a direct benefit of the Company’s investment in your training, the market value of your skills will increase and, under normal circumstances, exceed your salary for the same reason.’ In the same section, the Training Contract stated:

“If you choose to repay your debt by contribution, you agree that your salary and overall remuneration package for the duration of this Agreement will be based on your Employment Contract. You understand that the Company is under no obligation to increase your remuneration for the duration of this Agreement and understand that this is one of the considerations of the Company in writing off your debt by 1/18th per month as a return on their investment in your training costs.”

Having entered into the agreements with Geeks, Mr Watts began work on 18 March 2019 as a QA engineer or tester. His salary was £18,000 (rising to £20,000 in year two and £22,000 in year three).

Mr Watts requested a pay rise which was refused. He resigned on 12 November 2019, eight months after his contract with Geeks had begun, to take up employment as a QA at a firm called Omnio for which he would be paid £30,000 per annum.

Geeks commenced proceedings against Mr Watts on 21 September 2021 to recover the £8,108, alleging that Mr Watts had breached the Clawback Provisions. Mr Watts filed a Defence in which he alleged that Geeks could not enforce the relevant terms of the Training Contract on the basis that they constituted an unlawful restraint of trade.

A trial took place on 13-14 July 2023 before the Deputy District Judge. Mr Watts’ pleaded Defence argued that the contractual provisions enabling Geeks to recover money from Mr Watts in respect of the in-house training he had received constituted restraints of trade, before going on to allege that they went further than was reasonably necessary to protect any legitimate business interest of Geeks. There was no pleaded Reply. It may have been technically in issue whether the clawback provisions were in restraint of trade at all, but the judgment of the DDJ reads as though it was assumed that the clauses were in restraint of trade, the issues being whether they protected a legitimate interest of the claimant and went no further than reasonably necessary to do so.

In an ex tempore decision on the second day of the trial 14 July the DDJ gave judgment for Geeks. He held that although the Clawback Provisions amounted to a restraint of trade, they protected a legitimate interest and were not unreasonable.

The DDJ held that case law required him to determine (i) whether Geeks had shown that it had a legitimate interest which was protected by the Clawback Provisions, (ii) whether Geeks had shown that the Clawback Provisions were doing no more than was reasonable to protect its legitimate interest, and (iii) whether Mr Watts had shown that the Clawback Provisions were contrary to the public interest.

In response to Geeks’ submission that it had a legitimate interest in ‘avoiding a profit loss’, the DDJ determined that a company has a legitimate interest in ‘not only internal costs, but… also ‘the fact that if [employees] leave without being bound by the covenant, it is depriving the employer of the opportunity costs of having trained employees and/or the use of trained employees’ skills which they have invested in, as opposed to having to employ a skilled employee which is going to cost them money.’ Geeks’ legitimate interest was also articulated as ‘[retaining] employees that [it] has invested time in money and training, so if they then lose the benefit of training and go off to someone else at a higher wage’ or ‘a legitimate interest to keep those that the claimant has invested in training’.

The Clawback Provisions were reasonable for protecting Geeks’ legitimate interest. There was no particular inequality in Mr Watts’ bargaining power beyond that typical in employer-employee relationships; the Clawback Provisions were affordable to Mr Watts, as once trained Mr Watts would have known he would earn considerably more money, as evidenced by his new job at Omnio. The DDJ said at [52]:

“It is a legitimate interest for the claimant to wish to [retain] its employees, and it is not wrong in principle to incentivise them by not [raising] their wages, but by making them subject to an obligation to reimburse a training debt, to prevent them using the skills they learnt at the claimant’s cost, to go elsewhere at a higher salary”.

No public policy reasons were raised which were different from those raised in relation to the legitimate interest and reasonableness points.

The DDJ held that the clauses in question were not penalty clauses. He also held that Geeks was not disentitled from recovering the money by any failure to perform its side of the contract. There was no appeal from either of these findings.

Permission to appeal to a circuit judge was given by the DDJ on 9 October 2023. The DDJ, as already noted, had held that the clauses were indeed restraints of trade but found for the Claimant on the issues of legitimate interest and reasonableness. By a Respondent’s Notice served on 7 November 2024 together with the Respondent’s skeleton argument, Geeks sought to challenge “the finding in paragraph 43 [of the DDJ’s judgment] that the doctrine of restraint of trade was engaged on the basis that the contract/clause was probably a post-currency restraint”; reference was made to the decision of Bacon J handed down on 11 October 2023 in Steel v Spencer Road LLP [2024] ICR 137.

The appeal was heard by Her Honour Judge Evans-Gordon (“the judge”) on 13 November 2024. Mr Platts-Mills for the Appellant/Claimant objected to the judge dealing with the matters raised in the Respondent’s Notice served less than a week before the hearing. The judge offered Mr Welch, appearing for the Respondent, an adjournment, but he declined. Counsel eventually accepted that the appeal should proceed on the basis that the Clawback Provisions were a restraint of trade, in line with the DDJ’s judgment. However, Judge Evans-Gordon observed that, ‘left to myself, I would apply the principles set out in Steel, which would in other circumstances be binding on me, to the effect that a clawback of monies pursuant to a contract following resignation, is not a restraint of trade clause.’

The judge therefore proceeded on the basis of the DDJ’s finding that the clause was a restraint of trade. In a reserved judgment delivered orally on 15 January 2024 she dismissed the appeal.

Judge Evans-Gordon observed that in two similar cases determined together by the Employment Tribunal - Bennett v Geeks Limited and Day v Geeks Limited – it had been held that Geeks’ Clawback Provisions were not restraints of trade, and, if they were, they were lawful. (We were not shown these judgments, which apparently concerned claims by Mr Bennett and Mr Day that Geeks’ training clawback provisions were unlawful deductions from their wages.)

The judge held that it was “open to the court to find that the object was to incentivise trainees to stay and thus to maintain a stable and skilled workforce.” She referred to the evidence of Ms Jessup for Geeks drawing comparisons between Government apprenticeship schemes and the Geeks training contract, saying:

“We take a risk on inexperienced people and provide them with a proven training process and bespoke support that helps them to learn, grow and establish themselves in the industry while paying them liveable salaries during the training period. Although the trainees rather than the Government will eventually repay the company's costs, this repayment is offset by pay rises in a positive value cycle that can leave the trainee much better off than if the Government paid the training.

...

The result is beneficial for the company in beating the skill shortage problem and beneficial for the trainees, the industry and the economy as a whole."

The judge considered that it had not been impermissible for the DDJ to have taken into account matters arising at a later date, namely the benefits which accrued to Mr Watts from his training. This evidence merely reflected the objective intention of the parties. She said:

“In my judgment, this ground cannot succeed. The contract itself contemplated that the results of the training would increase the market value of Mr Watts' skills. This is objective evidence of reasonableness as permitted per Harcus at [70], particularly [70(i)]. All the judge has done is observe that the reality reflected the objective intention or object of the parties. The judge's remarks in relation to Mr Watts' ability were made in the context of affordability of repayment. He could and might helpfully have referred to the statement of expectation or intention in the training contract, but his failure to do so does not mean he was wrong in law.”

The judge held that the DDJ did not fail to take imbalance of bargaining power into account, and in any case there was no evidence that Geeks had used its bargaining power in an unfair or onerous way. Geeks’ calculation of the Training Costs had been considered by the DDJ to be a genuine attempt at estimating the cost of Mr Watts’ training.

The judge continued:

“As already set out, the contract envisaged the benefits accruing to Mr Watts as a result of training. Considering the events as they occurred simply validated the reasonableness of the term or acted as a useful cross-check as at the date of the contract. The judge's conclusion was not perverse for the reasons given. The contract envisaged a significant increase in salary following training. That, in the event, came to pass. The increase in salary was significant at £12,000 per annum.” [This is a reference to the increased salary which Mr Watts was able to earn on taking up his new employment. His projected salary increases had he stayed with Geeks would have been very substantially less.]

One of the grounds of appeal from the DDJ was that he had failed to consider whether the sum claimed overstated the true cost of training Mr Watts. Judge Evans-Gordon said:-

“51.

The contract itself states that the cost of training to Geeks cannot wholly be captured by way of a calculation of hourly rates for trainers or mentors. Training staff from scratch involves considerable investment of resources. While profit per se may not be a legitimate interest protectable by a restraint of trade clause, it does not follow that an employer cannot make an effort to fairly estimate the cost of training an employee in a way that goes beyond basic hourly rates of pay.

52.

There is a cost to the company of diverting staff to training. The judge's view plainly was that Geeks had made a genuine attempt at estimating the cost to it of training Mr Watts in a way that provided clarity to him, at least as much clarity as possible.

53.

While this is not an exercise that the judge went through, nearly £3,350 of the recoverable training costs related to the costs of employing Mr Watts during his first six months when he had initially no or relatively few skills. It is legitimate, in my judgment, to include costs such as employer's national insurance and overheads. A rule of thumb that is generally accepted is that one takes one-and-a-half times a basic salary in order to produce a broad estimate of the costs to the company of employment.

54.

The cost to Geeks of diverting fully trained employees is likely to be higher than the costs of Mr Watts. The cost attributable to the training and mentoring in this case was £4,560 over a six month period. This is a figure 36 per cent higher than the costs attributable to Mr Watts. I cannot see how this can be said to be an over-statement of the costs of the training to Geeks. While the judge may not have spelled out his conclusion and basis, and one must remember that he was operating under the exigencies of daily courtroom life, in my judgment it was open to the judge to reach the conclusion that the costs to Geeks were not overstated on the evidence. Further, it seems to me that he did take these matters into account.”

Finally, the judge rejected what she described as a consistent theme of Mr Platt-Mills' submissions, that of compulsory servitude. She said:-

“In my view, that somewhat emotional term is not apt to describe a contract of this nature. The contract expressly provided that the applicant was free to leave at any point and recognised that the skills acquired by Mr Watts were his to exploit. This is not a case of some sort claim to Mr Watts’ acquired skills or knowledge as an asset of the company. I do not accept the submission that an employer’s wish to retain their employees is the same as preventing them from working elsewhere. Most employers will wish to retain valuable, trained staff in whom they have invested and may well incentivise them to stay or disincentivise them from leaving, This cannot, by itself, amount to an unreasonable restraint of trade. The repayment provisions are not so onerous as to, in effect, prevent departure and thus equate to or be the flipside of the coin to compulsory servitude. Geeks is not asserting a right to exclusive right to Mr Watts’ acquired skills. The training contract recognises that he may wish to take them to market and exploit them for himself and envisages that he will be able to do so because of the value of those acquired skills. While there may be cases where such a clause is so onerous as to prevent the resignation of an employee, this contract does not come anywhere near compulsory servitude for the reasons given by the judge and earlier in this judgment.”

Permission to appeal was sought on two grounds:

I granted permission to appeal on both grounds on 25 July 2025.

Geeks filed a Respondent’s Notice on 6 August 2025 asking the Court to uphold the judgments below on the additional ground that the Clawback Provisions did not amount to a restraint of trade at all.

The phrase “in restraint of trade” is ambiguous. Sometimes it is used as shorthand for “in unreasonable restraint of trade and accordingly unenforceable”. I prefer to use it in the sense of being a contractual provision to which the restraint of trade doctrine applies.

Mr Solomon KC submitted first that it was not open to the Respondent to argue in this court that the clause was not in restraint of trade. This court’s jurisdiction on an appeal pursuant to CPR 52.21(1) is limited to a review of the decision of the lower court, in this case that of Judge Evans-Gordon, and the point had effectively been conceded before her when Mr Welch did not seek an adjournment. Mr Solomon also contended that it would be an abuse of process for the Respondent to rely on this argument before this court since it was “estopped by conduct” of the litigation below.

The bundles of authorities before us included many on this jurisdiction issue. There is a good deal of force in the points which Mr Watts’s team make. However, we took the view that we should allow the argument to be raised before us. The issue raised is a pure point of law and in the event Mr Solomon KC and Mr Platts-Mills were well able to deal with it. It is quite closely connected with the two grounds of appeal lodged by Mr Watts and it is desirable that the important point of principle which it raises should be resolved. As Haddon-Cave LJ said in Singh v Dass [2019] EWCA Civ 360 at [15]-[18]:-

"15.

The following legal principles apply where a party seeks to raise a new point on appeal which was not raised below.

16.

First, an appellate court will be cautious about allowing a new point to be raised on appeal that was not raised before the first instance court.

17.

Second, an appellate court will not, generally, permit a new point to be raised on appeal if that point is such that either (a) it would necessitate new evidence or (b), had it been run below, it would have resulted in the trial being conducted differently with regards to the evidence at the trial (Mullarkey v Broad [2009] EWCA Civ 2 at [30] and [49]).

18.

Third, even where the point might be considered a 'pure point of law', the appellate court will only allow it to be raised if three criteria are satisfied: (a) the other party has had adequate time to deal with the point; (b) the other party has not acted to his detriment on the faith of the earlier omission to raise it; and (c) the other party can be adequately protected in costs. (R (on the application of Humphreys) v Parking and Traffic Appeals Service [2017] EWCA Civ 24; [2017] RTR 22 at [29])."

We therefore allowed Ms Ferber to argue the point. It occupied more than half of the time spent on the Respondent’s submissions before us. If the point had made a difference to the outcome of the appeal I would have been amenable to a submission that the Respondent should be penalised in costs, particularly the costs of the hearing before Judge Evans-Gordon, but that possibility need not be pursued further if my colleagues share my view as to what the outcome of the appeal should be.

Accordingly the parties’ cases can be summarized as follows. Mr Watts says that the clawback provisions were in restraint of trade and either a) did not protect any legitimate interest of the company, alternatively b) went further than reasonably necessary to protect such legitimate interest as there may have been. Geeks’ primary case (pursuant to the Respondent’s Notice) was that the clawback provisions were not in restraint of trade at all and were simply enforceable as a debt. Their alternative case was that the company had a legitimate interest in protecting its investment in training Mr Watts, and the clauses went no further than reasonably necessary to protect that interest.

It was common ground that the enforceability of the clawback provisions must be considered as matters stood at the time that the training contract and employment contract were signed.

The framework of the law on restraint of trade in the context of employment still derives from three decisions of the House of Lords in the period 1894-1916: the Nordenfelt case [1894] AC 535 (although that concerned the sale of a business); Mason v Provident Clothing and Supply [1913] AC 724; and Herbert Morris Ltd v Saxelby [1916] 1 AC 688. In his speech in Herbert Morris at page 709 Lord Parker of Waddington, having pointed out that Nordenfelt had been a business sale case where covenants against competition may well be reasonable, continued:-

“It is quite different in the case of an employer taking such a covenant from his employee or apprentice. The goodwill of his business is, under the conditions in which we live, necessarily subject to the competition of all persons (including the servant or apprentice) who choose to engage in a similar trade. The employer in such a case is not endeavouring to protect what he has, but to gain a special advantage which he could not otherwise secure. I cannot find any case in which a covenant against competition by a servant or apprentice has, as such, ever been upheld by the Court. Wherever such covenants have been upheld it has been on the ground, not that the servant or apprentice would, by reason of his employment or training, obtain the skill and knowledge necessary to equip him as a possible competitor in the trade, but that he might obtain such personal knowledge of and influence over the customers of his employer, or such an acquaintance with his employer's trade secrets as would enable him, if competition were allowed, to take advantage of his employer's trade connection or utilize information confidentially obtained.” [emphasis added]

This classic passage remains good law over a century later. The employee – who may be an apprentice or trainee – is likely to acquire skill and knowledge in the course of his work or his training at the employer’s expense. He is free to take that skill and knowledge away with him and to work for another employer, or become self-employed, subject only to reasonable restraints to protect the employer’s trade secrets or customer connections (I will come to stability of the workforce later under the heading “legitimate interests”).

A convenient statement of the principles of restraint of trade – though it must be emphasised that it was not an employment case – may be found in the judgment of Carr LJ (as she then was) in Quantum Actuarial LLP v Quantum Advisory Ltd [2021] EWCA Civ 227 at [60]:-

“i)

The doctrine is not confined to immutable boundaries or rigid categorisation, but there are certain categories of covenants to which the doctrine traditionally applies, in particular those by which an employee undertakes not to compete with his employer after leaving the employer's service and those by which a trader who has sold his business agrees not thereafter to compete with the purchaser of the business. The doctrine has been held to apply to franchise agreements, share-purchase agreements and the assignment of a patent;

ii)

There are no clear limits on the scope of the doctrine and no precise or exhaustive test can be stated. The doctrine is to be applied to factual situations with a broad and flexible rule of reason (see Esso (at 331G per Lord Wilberforce)). The question is whether or not in all the circumstances the contract should be excluded from the application of the doctrine or, as Lord Wilberforce put it in Esso (at 332G), whether it is appropriate to dispense the contract "from the necessity of justification under a public policy test of reasonableness";

iii)

Contractual restraining provisions which are of a sort which have become part of the accepted machinery of a type of transaction which have generally been found acceptable and necessary – reflecting the accepted and normal currency of commercial or contractual conveyancing relations - will generally fall outside the scope of the doctrine (following the "trading society" test discussed above and approved in Peninsula Securities);

iv)

Determining whether contractual restraints fall outside the range of a normal commercial contract imposing restrictions on a contracting party's ability to carry on a business activity is a question of evaluating all the relevant factors to be assessed cumulatively (see in particular PSM (at [99] per Arden LJ));

v)

The assessment of application of the doctrine is to be carried out by reference to the position as at the time that the contract is made (not by reference to subsequent performance and events). How the contract turns out may be relevant only in so far as it furnishes evidence of the nature of the contract in question when made (see in particular Schroeder (at 1309 per Lord Reid); PSM (at [104] per Arden LJ and at [149] per Gross LJ));

vi)

The application depends less on legal niceties or theoretical possibilities than on the practical effect of the restraint in hampering the freedom to trade (see in particular Esso (at 298A-B per Lord Reid)). It is a question of substance not form (see in particular Stenhouse (at 402G-H per Lord Wilberforce));

vii)

The doctrine can apply to restraints operating during the currency of the contract, as well as post-contractually. However, the distinction between pre-and post-termination restraints is not without relevance. The fact that a restraint is limited to the period of the contract may be a factor in favour of excluding the doctrine (or a factor to be brought into account on the side of justification) (see in particular Esso (at 238 per Lord Pearce; Panayiotou (at 335 per Jonathan Parker J) and One Money Mail (at [5] per Longmore LJ));

viii)

As already set out above, where the doctrine applies, the contractual restraints are prima facie unenforceable but all, whether partial or total, are enforceable if reasonable.”

As subparagraph [vi] of the above passage emphasises, the application of the doctrine depends less on legal niceties or theoretical possibilities than on the practical effect of the restraint in hampering the freedom to trade: it is a question of substance, not form. It is not an answer to the applicability of the restraint of trade doctrine simply to say that the training clauses do not prevent any employee from leaving. No clause ever could do so, by virtue both of the common law rule against specific performance of an employment contract against the employee and the statutory prohibition in the Trade Union and Labour Relations (Consolidation) Act 1992 s 238 on injunctions requiring an employee to attend for work. Rather the question is whether, viewed as it must be at the time of the contract being made, it will or may have the effect of hampering the employee’s ability to trade freely. 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.

Geeks argue, referring to the recognition in paragraph 60(7) of Quantum, that there is a “distinction between pre- and post-termination restraints” and that on its proper construction the training contract restraint, such as it is, is limited to continuing employment. They refer to Carr LJ’s observation that if a restraint is limited to continuing employment this “may be a factor in favour of excluding the doctrine”. They submit that the DDJ should have held that this was a pre-termination clause and therefore would have been “bound to find” that it was not a restraint of trade.

It is of course obvious that contractual provisions restricting what an employee can do while he is employed under the contract in question will often not involve restraint of trade at all. But I simply do not see how this is applicable to the present case. We are concerned not with whether the provisions were unreasonable in any respect in their application to Mr Watts while he was still working for Geeks, but whether they constituted an unreasonable indirect restraint when they came into effect some time after he had left. That leads on to the next bold assertion in Geeks’ case, which is that the unconditional nature of the obligation to repay takes it outside the restraint of trade doctrine altogether.

The Training Contract required the cost of training to be repaid by way of 18 equal monthly payments whether or not Mr Watts resigned at the end of the training. Paragraph 45 of the Respondent’s skeleton argument states:-

“….There was no materially different treatment of Mr Watts depending on whether he continued in employment or resigned, and therefore the Training Contract could not even be said to contain a material disincentive to resigning (such as might in principle give rise to a restraint of trade). Simply, the Repayment Provision made the cost of training repayable as a debt, whether or not Mr Watts resigned.”

If this argument were sound in law – and it is not how the case was run in either of the courts below – it would amount to saying that an employer can require a new junior employee to repay a sum broadly equivalent to his total salary in the first six month period on the grounds that he has benefited from being “trained” by the employer, and that the reasonableness of the provision is immaterial. The public policy arguments against this view of the law (for example the undermining of national minimum wage legislation) were not fully developed before us, but are obvious.

I am in no doubt that a clause in an employment contract (or, as here a second document forming part of the terms and conditions of an individual’s employment), which provides that in specified circumstances all or part of the salary which he has been paid may be repayable to the employer, engages the restraint of trade doctrine. If it were otherwise, then a clause stating “if you leave within 12 months you must repay us your entire gross salary” would presumably be enforceable as a debt without any enquiry into its reasonableness.

Geeks rely strongly on the decision of Bacon J in Steel v Spencer Road LLP [2024] ICR 137. An annual discretionary bonus was calculated and paid at the end of the calendar year but was repayable if the employee left or gave notice to leave within the following three months. This was very similar in practice to a common form of employment contract under which a bonus calculated at the end of a year would only be payable if the employee remained in employment and had not given notice three months later. It would be surprising if such a condition had been regarded as unreasonable even if it had been held to fall within the restraint of trade.

Bacon J refers to several previous decisions in the field. The first was the decision of this court in Electronic Data Systems Ltd v Hubble (unreported) 20 November 1987. Mr Hubble’s employment contract with EDS provided that he was to receive specialist training, but required him to sign promissory notes obliging him to repay the costs of that training if he resigned or was dismissed within a specified time period. Mr Hubble did resign within that time period and EDS made a demand under the promissory note. When Mr Hubble refused to pay, EDS issued proceedings and applied for summary judgment. It succeeded at first instance.

It seems that it was accepted by counsel for both parties that the contractual provision in question was capable of being a restraint of trade. The question to be decided was therefore whether it was arguable that the restriction imposed was greater than reasonably necessary to protect the legitimate interests of the parties. Mustill LJ said that, after some initial hesitation, he did not regard Mr Hubble’s case as so hopeless that he should not be allowed to argue it at a trial. The case is of very limited value as a precedent. If the summary judgment had been upheld that would have been quite different; but it was not.

Marshall v NM Financial Management Ltd [1997] ICR 1065 concerned an agency agreement between the claimant, a salesman, and the defendant. Clause 10(g)(i) of the agreement provided that the claimant would after termination of his appointment continue to receive commission in respect of payments by investors he had introduced to the defendant, provided that he did not become an independent intermediary or take up employment with an organisation competing with the defendant within the first year after termination of his appointment.

At first instance, Jonathan Sumption QC found that there was no doubt that Clause 10(g)(i) was a restraint of trade, given that it was a financial incentive to the agent not to carry on business in the specified fields [1995] ICR 1042,1046F. That finding was not challenged on appeal, and Millett LJ said (at 1071E):

“It is settled law that there is no difference in this context between a contract by a person that he will not carry on a particular trade (which if valid would be enforceable against him) and a contract that if he does not do so he will receive a benefit to which he would not otherwise be entitled (which if valid would not prevent him from carrying on the trade but merely result in the loss of the benefit in question) . . .”

A further condition in Mr Marshall’s contract provided that the relevant commission would only be payable if at the date of termination of the appointment the claimant had been continuously an agent of the company for a period of not less than five years. That condition was not regarded as a restraint of trade. Bacon J said in Steel at [35]:

“It is clear from this case, as Mr Croxford said, that the law recognises indirect restraints of trade where the restraint derives from the loss of a benefit rather than a direct prohibition on competing trade. It is important to note, however, that Marshall does not suggest that any provision which leads to the forfeiture of a benefit if the employee leaves the relevant employment is a restraint of trade. Quite the contrary, the reason why clause 10(g)(i) was a restraint of trade was that it restricted the claimant’s freedom to carry on particular forms of trade after the termination of his appointment. The further condition of at least five years employment was, by contrast, not a restraint of trade.” [emphasis added: I understand the italicised word “any” to be used in the sense of “every”]

Paragraph 35 of Bacon J’s judgment needs some unpicking. It is correct that not every provision which leads to the forfeiture of a benefit if the employee leaves the relevant employment is a restraint of trade. A clause providing that the payment of commission is subject to a condition of continuing employment or to having been employed for a specified period of time, but which does not otherwise restrict the employee’s freedom to take up other employment, is not a restraint of trade, or at least not one which is unreasonable and accordingly unlawful: see the decision of Rimer J in the Employment Appeal Tribunal in Sweeney v Peninsula Business Services Ltd [2004] IRLR 49. But I do not accept that it is a correct analysis of the finding of Mr Sumption QC in Marshall that Clause 10(g)(i) of the agreement in that case was a restraint of trade only because it actually restricted the claimant’s freedom to carry on particular forms of trade after the termination of his employment. It was, as Mr Sumption QC put it, “a financial disincentive to the plaintiff not to compete with the defendant and as such was void as being in restraint of trade unless reasonably required for the protection of some legitimate interest of the defendant”.

While the result in Steel was no doubt correct, the case does not support the proposition that the restraint of trade doctrine is only applicable to contractual provisions which seek directly to limit the employee’s activities after leaving employment. For the reasons I have given I consider that the doctrine is plainly engaged in this case.

In Dawnay, Day & Co Ltd v de Braconier D’Alphen [1997] IRLR 442, Evans LJ said that the established categories of circumstances in which covenants in restraint of trade may be enforced:-

“...are not rigid and are not exclusive, rather the covenant may be enforced when the covenantee has a legitimate interest of whatever kind, to protect, and when the covenant is no wider than is necessary to protect that interest.”

Dawnay, Day is generally cited as the authority which established the legitimacy in principle of covenants against poaching fellow employees. It goes somewhat wider than that. Evans LJ said at paragraphs 44-46:-

“44.

Mr Elias' first and principal submission was that the judge was wrong to consider himself bound to follow the judgment of Leggatt L.J., with whom Russell L.J. agreed, in Ingham v. ABC Contract Services (12 December 1993, C.A.), where he said that the provision in question:-

"is intended to prevent the defendant from poaching the plaintiffs' employees after he has left their employment. They have a legitimate interest in maintaining a stable, trained work force in what is acknowledged to be a highly competitive business [that of an employment agency]. That is an interest which the plaintiffs are entitled to protect against solicitation and enticement by the defendant."

Mr Elias further submitted that that statement of law was wrong, in any event. Moreover, it differed from an earlier judgment given by Dillon L.J. in Hanover Insurance v. Schapiro [1994] IRLR 82, which it appears was not cited in the later case. Dillon L.J. expressed what the judge called "a general view .... that an employer does not have any sort of proprietary interest in a stable team of staff entitling the employer to impose restrictions on solicitation of staff", and Nolan L.J. agreed with him.

45.

Before us, counsel agreed that neither of these two-judge interlocutory judgments should be regarded as binding us in the present case.

46.

For my part, I have some reservation as to whether the validity or otherwise of a non-solicitation covenant of this kind should properly be regarded as a question of law. The authorities to which I have referred above demonstrate that the general principles are clear and that their application depends upon the terms of the undertaking and the factual circumstances in every case. I would agree with Leggatt L.J. that an employer's interest in maintaining a stable, trained workforce is one which he can properly protect within the limits of reasonableness by an undertaking of this sort. But it does not follow that that will always be the case.”

The scope of the legitimate interest in “maintaining a stable, trained workforce” has not been defined in the 33 years since Ingham v ABC Services. For present purposes I will proceed on the basis that the legitimate interest is present in this case.

If, as I think, the training contract repayment provisions plainly engage the restraint of trade doctrine; and on the assumption that they may be justified if they go no further than reasonably necessary to protect the legitimate interest of Geeks in maintaining a stable trained workforce, the final stage is to assess whether that test was satisfied. It is important to bear in mind some of the basic rules in this area:-

I accept that the provisions for repayment by monthly instalments are more reasonable than the contract would have been if it had made the £8,108 repayable as a lump sum, or provided that failure to make one monthly payment would trigger liability for the whole sum due.

If I were the trial judge, I would have found highly questionable the method of calculation of the £8,108, in particular the costing out of the time of “mentors” at £60 per hour (on Mr Watts’ evidence, five to six times what his mentor Mr Deering was actually paid). But I am not the trial judge, and the calculation of the £8,108 was not in itself a ground of appeal. What I would observe is that even taking as correct the calculation of time spent in months 3 to 6 of the job on being mentored (half an hour per day), or on “study and practice activities” (20 hours per month, say 1 hour per day), that leaves the greater part of the working day unaccounted for, as if during that time what Mr Watts was doing could be treated as effectively of no value to the employer. This is highly artificial if, as the evidence indicated, clients were already being billed by the company for his services.

There are two reasons which lead me to the conclusion that the repayment provisions are unreasonable and unenforceable. The first is that the provisions apply whatever the reasons for the employee’s departure (with the single exception of redundancy); whether he is dismissed (which could have been on one week’s notice) or leaves voluntarily; and irrespective of whether he leaves for a job in the technology sector or elsewhere, with a salary increase or none, or for no job at all: for example, he might have become a carer for his grandfather who suffered from dementia.

The second involves standing back and looking at the broader picture. No doubt starter jobs, such as that which Mr Watts obtained at Geeks, are highly sought after and, as in the not so far off days of widespread unpaid internships, many prospective employees, if their personal circumstances permitted it, would be willing to work for nothing. The effect of the clawback provisions is that in the early months of his employment Mr Watts, who was paid not very much more than what was then the level of the national minimum wage, was reduced in retrospect to the equivalent of an unpaid intern albeit with a loan repayable over a period. I cannot accept that these repayment provisions went no further than reasonably necessary to protect the legitimate interests of Geeks in maintaining the stability of their trained workforce.

I would allow the appeal and set aside the decisions of the county court in Geeks’s favour.

I agree.

I also agree.