Was a bonus clawback provision in a contract of employment a restraint of trade?

Mr Steel worked for Omerta.  Under his contract of employment, his remuneration consisted of a basic salary plus a discretionary bonus scheme.  Payment of the bonus was conditional on him remaining employed for three months after it was paid and not giving notice (or being given notice) to terminate his employment during that period.  His contract stated that if he served or received notice of termination, Omerta would be entitled to recover any discretionary bonus payments made to him during the three month period before the date of the notice and that the sums would be recoverable as a debt.

In January 2022 Mr Steel was paid a bonus of £187,500.  He resigned in February and Omerta asked him to repay his bonus, in accordance with the clawback provisions in his contract.  When he refused, Omerta issued a statutory demand.  Mr Steel applied to the Insolvency and Companies Court (ICC) to set it aside on the basis that the contractual provisions operated as an unreasonable restraint of trade or were penalty clauses and were unenforceable.  The ICC refused his application, holding that the bonus clawback provisions were not within the restraint of trade doctrine and the penalty clause argument had no real prospect of success.  The ICC followed a case called Tullett Prebon v BGC Brokers [2010] EWHC 484 (QB), which had held that a contractual bonus clawback provision was not a restraint of trade.  Mr Steel appealed to the High Court in relation to the restraint of trade finding.

The High Court dismissed Mr Steel’s appeal, holding that the ICC was right to follow the Tullett Prebon case.  The High Court held that the bonus clawback provisions acted as a disincentive to Mr Steel resigning.  He was also subject to a 12 week notice period so the overall effect was that he had to remain employed for around six months after receiving a bonus in order to keep it.  However, this disincentive was not a restraint of trade as it did not restrict Mr Steel’s ability to take up other employment after he left Omerta.

 What can we take away from this case?  The decision is helpful because it confirms that a bonus clawback provision that requires an employee to remain employed for period of time does not operate as a restraint of trade.  However, it is a judgment of the High Court so is not binding on other courts, and the court has to consider all the relevant facts so every case will be different.  The ICC judge commented that there might be circumstances where the severity of the consequences (in this case, either remaining employed for a period of time or forfeiting the bonus) were clearly out of all proportion to the benefit received (here, the amount of the bonus) but this was not arguable in this case, where the judge found that the conditions attached to the bonus payments were very moderate.  This leaves the door open for an employee in different circumstances to argue that a bonus clawback provision is in restraint of trade.