Bonus ‘clawback’ provision is not a restraint of trade

In Steel v Spencer Road LLP, the High Court has held that a provision in an employee’s contract, which required a bonus of £187,500 to be repaid if his employment was terminated within 3 months after it was paid, or if he gave or was served notice to terminate within that period, did not constitute a restraint of trade, even though the provisions operated as a disincentive to the employee resigning.

The Court therefore refused to set aside a statutory demand that sought repayment of the bonus because the employee had given notice to resign within the specified period after it was paid.

The Insolvency and Companies Court (ICC), which forms part of the chancery division, refused to set aside the statutory demand, because the weight of the authority is that bonus clawback provisions do not fall within the restraint of trade doctrine, since they did not restrict the employee’s ability to work elsewhere.

The judge relied, in particular, on the decision in Tullett Prebon plc v BGC Brokers, LP 2010 EWHC 484 (QB), where the High Court concluded that clauses in financial brokers’ contracts requiring the repayment of bonuses if (among other things) the brokers resigned or were not actively performing their duties before the end of a specified minimum term were not a restraint of trade and distinguished the later decision in 20:20 London v Riley, 2012 EWHC 1912 (ChD). The judge also considered an argument that the provision operated as a penalty clause but found the argument to have no real prospect of success.

The High Court dismissed the appeal from the ICC. Tullett Prebon was the only cited authority that specifically addresses the question of whether a bonus clawback which operates as a disincentive to resign is a restraint of trade, and the Court considered that that case was correctly decided.

Transcript: https://www.bailii.org/ew/cases/EWHC/Ch/2023/2492.html