Following the case of Steel v Spencer Road LLP (t/a The Omerta Group) , there has been particular debate over the interpretation of certain bonus clawback provisions that are present within employment contracts.
A bonus clawback provision may state that an employee must repay their discretionary bonus if they were to leave or have provided notice within a certain period of time since receiving their bonus.
The restraint of trade principle is formed from the idea that individuals should be free to work without any undue interference.
Contractual terms that could infringe this freedom to work or carry out a trade or business will be deemed as void unless they go no further than is required to protect the company’s legitimate business interests.
Therefore, when assessing whether a clause goes against the restraint of trade principle, a two-stage test must be applied:
If this test is fulfilled, then the bonus clawback may be considered as a restraint of trade clause.
Although, discretionary bonus schemes, which are provisional on the employee remaining in the employment for a specific period of time, functions as a disincentive to that particular employee resigning, this does not, in and of itself, amount to a restraint of trade.
Consideration of the combined effect is not necessary when assessing whether the clawback provision amounts to a restraint of trade if no challenge has been brought regarding post-termination restrictive covenants and there is no suggestion that the post-termination restrictive covenants have a bearing on the interpretation.
Bonus clawback provisions in employment contracts will not necessarily, without something obscure or supplementary within the contract itself, be in restraint of trade even if they require the employee to continue in employment to avoid their affect.