Employers who advance sums to employees, such as relocation costs, will often try to claw back those sums in the event that the employee leaves within a defined window. The Privy Council (broadly, a collection of senior politicians who are or have been members of the House of Commons or House of Lords) looked at the legality of this in a recent case.

In this case, the employee received a repayable allowance from his employer while he undertook a degree. The repayment terms expired if he worked for the employer for five years following completion of his degree. In the event, the employee took voluntary redundancy 18 months after returning to work, and his employer deducted the loan payments from his redundancy payment.

The Privy Council decided that there was no implied term on the facts of this case that repayment was not required. This was because the employee freely chose to apply for redundancy. However, the Privy Council did state that there was an implied term that repayment would be waived if the employer prevented the employee from completing his five years of service.

What Should Employers Do Next?

This case, which is persuasive but not binding, could impact on the way that other repayment terms are viewed, e.g. in enhanced maternity pay schemes. Employers should be aware, therefore, that it may not be lawful to enforce the provisions of a repayment clause where the employee’s employment is terminated through no fault of the employee (even where the terms of the contract give the employee express power to do so).