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Bonus “clawback” provisions did not amount to a Restraint on Trade

Bonus clawback legal update

The High Court has found in the case of Steel v Spencer Road LLP that a bonus clawback clause in an employee’s contract requiring his bonus to be paid back if his employment was terminated within a certain time scale, was not a restraint on trade. This is despite the provision being a clear disincentive to resignation.

Mr Steel, was employed under an employment contact (the “Contract”) with Spencer Road LLP. Under the terms of the Contract, Mr Steel was given a basic salary of £65,000 per annum plus a discretionary bonus (the “Bonus”). The Bonus was conditional upon him remaining in employment for three months after the payment of the Bonus and also not having given, or been given, notice to terminate his employment during those three months.

In January 2022, Mr Steel was paid a bonus of £187,500. Following this, in February 2022 Mr Steel gave notice to Spencer Road LLP to terminate his contract of employment. Per the terms of his Contract, Spencer Road LLP asked Mr Steel to repay his Bonus, however Mr Steel refused. A statutory demand was served on Mr Steel, but he applied to the Insolvency and Companies Court to set this aside, arguing that it was a restraint of trade or a penalty clause and thus that it was unenforceable.

Mr Steel’s application was dismissed, and it was found that the bonus clawback provisions did not fall within the restraint of trade doctrine as it did not restrict his ability to work elsewhere.

Mr Steel paid back the bonus but appealed to the High Court arguing that the court should have applied a different approach.

The High Court again dismissed his appeal, however noted that there was no dispute that the bonus clawback provisions operated as a disincentive to resign. However, that disincentive was not a restraint of trade.

This is just a snapshot of the judgment. To read the full case and the in depth legal arguments please see Steel v Spencer Road LLP (t/a The Omerta Group) [2023] EWHC 2492 (Ch) (11 October 2023) (bailii.org).

For advice on how this may impact your business and what you may need to do going forward, please get in touch with one of our specialist team today.

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