In Cleeve Link Ltd v Bryla UKEAT/0440/12, the Employment Appeal Tribunal (EAT) considered whether a clawback clause entitling an employer to deduct certain amounts from an employee's wages was enforceable.
Ms Bryla was recruited by an agency in Poland to work for Cleeve Link Ltd (CL) as a live-in carer. CL had paid a fee to the agency and for Ms Bryla's flights to the UK. These costs amounted to around £1,000. Her employment contract contained a clawback clause giving CL the right to deduct this amount in full from her wages if she resigned or was dismissed for gross misconduct in the first 6 months of her employment, after which the deductions would be made on a sliding scale. Ms Bryla was dismissed for gross misconduct after 3 months. CL, relying on the clawback clause, deducted the full amount from her unpaid wages and as a result she received no final salary payment. The Employment Tribunal held the clause was unenforceable and upheld Ms Bryla's claim for unlawful deductions from wages.
The EAT disagreed and held that the clause was enforceable because the amount deducted was a genuine pre-estimate of loss that could be incurred by CL in the event of a breach of contract. Accordingly, the deductions were lawful. The EAT also provided the following useful guidelines on determining the enforceability of clawback clauses: (i) the contract should be considered at the time it was entered into; (ii) the clause should be examined objectively; (iii) if the purpose of the clause is to deter one party from breaching the contract it is likely to be unenforceable, but if it is a genuine pre-estimate of loss it is likely to be enforceable; and (iv) it is likely to be unenforceable if there is a vast ‘gulf' between the maximum amount of loss that could be incurred and the amount payable, or if the same amount is payable on the occurrence of a number of events giving rise to different levels of loss.
This decision will be welcomed by employers but it does highlight the level of scrutiny imposed by the courts on such clawback clauses. Employers should bear in mind this useful guidance when introducing clawback provisions to increase the likelihood that they are enforceable.