{"id":219243,"date":"2023-11-21T18:52:10","date_gmt":"2023-11-21T18:52:10","guid":{"rendered":"https:\/\/dominiclevent.com\/blog\/?p=219243"},"modified":"2023-11-21T18:52:10","modified_gmt":"2023-11-21T18:52:10","slug":"want-to-leave-your-employment-that-will-cost-you-employment-litigation-tribunals","status":"publish","type":"post","link":"https:\/\/dominiclevent.com\/blog\/want-to-leave-your-employment-that-will-cost-you-employment-litigation-tribunals\/","title":{"rendered":"Want To Leave Your Employment? That Will Cost You! – Employment Litigation\/ Tribunals"},"content":{"rendered":"\n
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21 November 2023<\/p>\n

Katten Muchin Rosenman LLP<\/p>\n<\/div>\n<\/div>\n


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Uncapped Bonuses<\/h3>\n

It’s the run-up to bonus season in the UK and there is a lot
\nto talk about. While the markets may have cooled down, the caps are
\noff! In a controversial move, regulators removed the regulatory cap
\non banker’s bonuses on 31 October 2023.<\/p>\n

Regardless of the industry sector you are in, if you are an
\nemployer and are paying out healthy bonuses this year, how can you
\nensure employees don’t take the money and run? The recent case
\nof Steel v Spencer Road LLP<\/em> highlights how businesses can
\nuse bonus clawback mechanisms to protect their interests.<\/p>\n

Restraints of trade \u2013 back to basics<\/h3>\n

Blanket ‘restraints of trade’are unenforceable in the UK
\nunless they are: (i) protect a legitimate proprietary interest;
\n(ii) go no further than is necessary to protect that interest; and
\n(iii) not contrary to public interest.<\/p>\n

The UK courts have generally shied away from categorically
\ndefining exactly what a restraint of trade is and what it is not.
\nHelpfully, the judge in Steel v Spencer Road LLP<\/em> confirmed
\nthat a ‘Bonus clawback provision’<\/em>is
\nnot<\/strong> a restraint of trade and if drafted correctly,
\nis enforceable.<\/p>\n

Steel v Spencer Road LLP<\/em> \u2013 the facts<\/h3>\n

Mr. Steel was employed at SR LLP. He received a basic salary of
\n\u00a365,000 and an annual discretionary bonus. He received a
\nbonus of \u00a3187,500 in January 2022 (Bonus). He resigned from
\nSR LLP in February 2022. This Bonus was subject to a clawback
\nprovision contained in his employment contract, which among other
\nthings, required him to reimburse SR LLP for his Bonus if he left
\nwithin three months of the bonus payment date. After Mr. Steel
\nresigned, SR LLP sought to rely on the clawback provision and
\nsubsequently served a statutory demand for the bonus to be repaid
\n(i.e., they tried to force him into bankruptcy when he failed to
\npay back the Bonus).<\/p>\n

Mr. Steel applied to the Insolvency and Companies Court (ICC)
\ncontending that the bonus clawback provision amounted to an
\n“unreasonable restraint of trade”and was therefore
\nunenforceable against him. The ICC dismissed the application on the
\nbasis that the provision did not actually prevent him from working
\nelsewhere. As a result, it did not amount to a restraint of trade.
\nOn appeal, the High Court agreed with the ICC noting that, despite
\na bonus or commission scheme being conditional on the employee
\nremaining at the firm for a set time, it merely operated as a
\ndisincentive to the employee resigning. The fact that Mr. Steel
\nwould have had to remain employed for six months (including his
\nnotice period) after the bonus payment and that he also was subject
\nto post-termination restrictive covenants had no bearing on the
\ninterpretation of the bonus clawback.<\/p>\n

Comments<\/h3>\n

In our view, this case shows the utility of including bonus
\nclawback provisions either in the employment contract or in the
\nbonus award letter itself. However, a few words of caution: the
\nterms of the clawback need to be carefully considered (to avoid the
\nrisk that it constitutes a penalty and is therefore invalid); the
\ndrafting needs to be clear and concise to reflect those valid aims,
\nand finally \u2014 always consider the tax consequences of gross
\nor net repayment provisions.<\/p>\n

*Maxime Chevot, a Litigation trainee, contributed to this
\nadvisory.<\/em><\/p>\n

The content of this article is intended to provide a general
\nguide to the subject matter. Specialist advice should be sought
\nabout your specific circumstances.<\/em><\/p>\n<\/div>\n<\/div>\n

\n

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