Repayment and Penalty Clauses in Contracts of Employment

In the case of Cleeve Link Limited v Bryla the Employment Appeal Tribunal (“EAT”) considered whether or not a repayment clause in a contract of employment was a penalty clause.

In the case of Cleeve Link Limited v Bryla the Employment Appeal Tribunal (“EAT”) considered whether or not a repayment clause in a contract of employment was a penalty clause. 

In this case, Ms Bryla was a Polish national recruited by the company to work as a live-in care worker.  As part of the contract the company had paid for fees and Ms Bryla’s air flight to the agency who had recruited Ms Bryla from Poland.  The employment contract Ms Bryla signed stated that the fees and costs of bringing her to the UK and training her could be deducted from her wages, if her employment terminated within the first six months.  The amount was then reduced on a sliding scale over the following six months.

After around three months Ms Bryla was summarily dismissed for gross misconduct and the company chose to set off the fees under the recoupment clause against around £1,200 in outstanding wages.  Accordingly Ms Bryla brought a claim for unlawful deductions from wages. 

The Tribunal found that the clause in Ms Bryla’s contract of employment was an unenforceable penalty and therefore the deductions were unlawful.  However, the EAT reversed this decision, and pointed out how a Tribunal will frequently need to look at both the application of common law contractual principles as well as the statutory law in relation to unlawful deductions.  It found that the company had made a lawful deduction and that this had been authorised by Ms Bryla’s contract and therefore was not a penalty.  The EAT highlighted how a Tribunal must consider the position at the time the contract was entered into and not at the time of the breach, and the Tribunal must then look objectively as to whether the purpose of the clause was to deter or to represent a genuine pre estimate of the anticipated loss.   

It is important to remember that if repayment clauses are to be included in contracts of employment that they need to be reasonable and well drafted to ensure that if they are enforceable.