Employment contract: Recoupment clause was not a penalty
A law firm was entitled to exercise its contractual right to recoup from a solicitor the cost of recruiting her after she left within a year, an employment tribunal has ruled.
The tribunal said that, had it decided that this was a penalty clause – which it did not – it would have struck down the provision as disproportionate.
Ms K Kaur, who was claiming for unlawful deductions from her wages, worked as a family law solicitor at Kent firm Hatten Wyatt from 5 May 2018 on a salary of £30,000 but left on 29 March 2019.
Under the terms of her contract, she expressly agreed that, in the event of giving notice within a year, she would refund the £5,100 fee the firm paid to recruiter Hunter’s Legal.
Ms Kaur had pushed back against the clause but was reassured by a member of Hatten Wyatt’s staff that it was hardly ever enforced. The tribunal said this was not the same as being told the firm would not enforce it.
Evidence indicated that some potential employees had pulled out of the process when the firm would not remove the clause. “It was open to the claimant to do also,” Employment Judge Burge observed.
In the event, the firm withheld her final salary payment of £1,793 – £1,578 as part payment of the fee and £215 to reimburse the firm for some of the cost of her practising certificate.
Judge Burge said: “Unfortunately the claimant was not happy working for the respondent. The claimant is a lone parent and found the journey time, problems with childcare and working hours difficult to juggle.
“She asked to be transferred to the Maidstone office [she was based in Gravesend] but the respondent was unable to accommodate her request.
“While the claimant did not raise a grievance about the situation, she clearly felt she had little choice but to hand in her resignation. I have every sympathy for her. I found the claimant to be an honest witness and I believed her account.”
Hatten Wyatt only informed Ms Kaur that she would receive nil pay for March 2019 the day before pay day and two days before she left. The judge said this was “unfortunate”.
The question was whether the clause was a penalty clause as identified by the Supreme Court in the 2016 case of Cavendish.
Judge Burge said penalty clauses were concerned with payments to be made to one party in the event of a breach by the other. There was no breach of a contract here, nor a requirement for her to perform an act in default.
“The contract expressly permits her not to perform the act of remaining in work, by providing for its termination by the giving of notice.”
Thus the requirement to pay the recruitment fee fell into a category described by the Supreme Court as not being a penalty.
The tribunal went on that, if it were wrong about this, Cavendish meant it had to consider what the commercial justification was and whether the clause was in all the circumstances extravagant, exorbitant or unconscionable.
Hatten Wyatt said the clause made sure that people were “committed”. The judge said: “In my view this shows that, in addition to recouping the fee, it also puts pressure on employees not to leave within the year.
“[Counsel for the firm] submitted that £5,100 was the tip of the iceberg in relation to the costs of recruiting, training, client care and similar issues.
“I would find it surprising if the claimant, working as a solicitor in a busy family law department, had not generated fees substantially above £5,100 during the 11 months she worked there.”
The full deduction equated to 21% of Ms Kaur’s annual salary. “The respondent had not considered the fact that the claimant had nearly completed a year’s service and had not done any calculation as to whether or not she had earned the respondent the £5,100 in that year,” the judge went on.
“It is my view that the effect of the clause is extravagant, exorbitant or unconscionable – it is an attempt to pass on normal recruitment costs to employees, it substantially restricts an employee’s ability to leave their employment within the first year and the fee itself is out of all proportion when compared to the net annual salary/income generated for the firm.”
But the judge said this would “be of little comfort” to Ms Kaur given the primary finding, and ruled that the £1,579 was a permitted deduction as allowed by section 13(1)(a) of the Employment Rights Act 1996.
However, Judge Burge found that the terms of the contract did not allow Hatten Wyatt to recoup the cost of the practising certificate.
It was paid by the firm “without condition” and could not be described as an ‘advance’ or a payment to a third party or a service misused/misapplied, payments which were covered by the contract.