Q&As

Is a clause requiring an employee to repay relocation costs if he terminates the employment contract within two years of the relocation void as a penalty clause, or as a restraint of trade?

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Published on LexisPSL on 01/04/2019

The following Employment Q&A provides comprehensive and up to date legal information covering:

  • Is a clause requiring an employee to repay relocation costs if he terminates the employment contract within two years of the relocation void as a penalty clause, or as a restraint of trade?
  • Penalties
  • Restraint of trade

Is a clause requiring an employee to repay relocation costs if he terminates the employment contract within two years of the relocation void as a penalty clause, or as a restraint of trade?

It is common for employment contracts to allow the employer to recoup relocation, training and other expenses incurred by it in respect of the employee. See, for example, Precedents:

  1. Clauses—place of work, residence, mobility and relocation

  2. Agreement—education and training costs

  3. Clauses—deductions

Sometimes, the relevant clause will specify that the obligation to repay certain expenses incurred on the employee's behalf by the employer will only be triggered if the employee does a certain thing and, if that trigger event does not occur, the employer will not seek repayment.

Penalties

A penalty is a payment of money stipulated in order to punish the offending party if it breaches the contract. The penalty rule:

  1. may potentially apply in circumstances where the contract:

    1. contains an obligation on one party to perform an act, and also

    2. provides that, if that party does not perform it (ie acts in breach of contract), he will pay the other party a specified sum of money, but

  2. can never apply where the contract:

    1. does not impose (expressly or impliedly) an obligation to perform the act, but

    2. simply provides that, if one party does not perform an act, he will pay the other party a

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