Clawback Clause in UK Contracts: What It Means & Example Wording

When to Include a Clawback Clause

• When paying a sign-on bonus or golden hello that should be repaid if the employee leaves within a specified period
• When funding expensive training or professional qualifications on the condition that the employee stays for a minimum period
• When paying enhanced maternity or paternity pay that is conditional on the employee returning to work for a minimum period

Example Wording

This example wording is illustrative only. Customise it to your specific circumstances and consider seeking legal advice.

Is a Clawback Clause Enforceable in the UK?

Clawback clauses are generally enforceable in the UK, but they must be reasonable. A clawback of training costs is more likely to be upheld where the training provides a portable qualification that benefits the employee. Courts may scrutinise whether the clause is a genuine pre-estimate of loss or an unenforceable penalty (Cavendish Square v Makdessi [2015]). Deductions from wages must comply with section 13 of the Employment Rights Act 1996 — the employee must have given prior written consent to the deduction. For enhanced maternity pay clawbacks, the clawback cannot apply to Statutory Maternity Pay, only to the enhanced element above SMP.

Common Mistakes

• Attempting to claw back statutory payments such as SMP or statutory redundancy pay — only enhanced contractual payments above the statutory minimum can be clawed back
• Making deductions from wages without prior written agreement — section 13 of the Employment Rights Act 1996 requires written authorisation for deductions
• Setting a clawback period that is disproportionately long relative to the benefit — a 5-year clawback for a 2-day training course would likely be challenged as unreasonable