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Expenses repayment clauses. Are they enforceable?

30th November 2013

A common concern for employers is ensuring that they value for money from the training they provide to their staff. In addition employers do not want to spend large sums of money recruiting an employee for that employee to leave shortly thereafter. In such cases some employers may try to seek to recover costs they incur in recruiting the replacement.

The question that is often asked in such cases is whether or not any clause in a contract of employment that provides for the training costs or recruitment costs to be recovered will be enforceable.

In many instances employers believe that such clauses are simply a pyschological deterrent, but not really enforceable. A recent case in the Employment Appeal Tribunal (the EAT) demonstrates that if done correctly such clauses can be enforced.

The case of Cleeve Link Ltd v Ms Bryla ruled that the Employment Tribunal has jurisdiction to hear cases concerning such contractual clauses- which have typically been brought in the High Court (usually at much greater cost and expense to the employer). The case is also helpful in outlining the legal approach in such cases. In this case, the individual, Ms Bryla, had been recruited by a company in Poland to work in the UK for Cleeve Link Ltd. Cleeve Link paid a fee of £400 to the recruitment company in Poland. It then met the costs of flying Bryla to the UK. So a significant cost had been incurred by Cleeve before Ms Bryla started work in the UK.

Subsequently Ms Bryla signed a contract which stipulated that if she left Cleeve within 6 months of the start of employment she would re-imburse the costs that Cleeve had incurred in recruiting her.

About 12 weeks later Ms Bryla was dismissed for alleged gross misconduct. Cleeve then deducted the recruitment costs, totalling over £1,000 from the unpaid salary that was due to Ms Bryla, leaving her with no further salary. Ms Bryla brought a claim alleging that Cleeve had carried out an unlawful deduction from her wages. The claim was brought in the Employment Tribunal.

The Employment Tribunal ruled that Cleeve could not rely on the repayment clause, concluding that the clause was an unenforceable penalty clause, because it did not represent a genuine pre-estimate of loss to Cleeve and so was not a valid liquidated damages clause.

The EAT however ruled that the Tribunal had jurisdiction to deal with the facts of this case, and ruled that the Employment Tribunal had been wrong in its decision. In the opinion of the EAT there was a clear relationship between the amount specified in the repayment clause and the maximum loss that could be incurred by Cleeve, which resulted in the clause being a genuine liquidated damages clause. Cleeve therefore were entitled to the money they had recovered from Mr Bryla.

This case demonstrates that repayment clauses can be legally enforceable. The lesson to be learned is to ensure that the clause properly directs itself to the actual costs that the employer incurs and that the employer can demonstrate the actual costs that have been incurred when the situation arises.

At Hallett Employment Law Services Ltd we can give you help and advice in dealing with problems that arise over such clauses, and help employers draft suitable clauses in their staff contracts of this sort.    

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