In an employer-employee context, the principle of 'restraint of trade' is designed to protect employees from being unreasonably restrained/limited by their employer from carrying out their 'trade' (i.e. working and earning a living) either during or after the termination of the employment relationship.

The classic example would be a non-compete clause (a form of post-termination restrictive covenant) which, generally speaking, prevents an individual from working for a competing business or setting up a rival business for a defined period after termination of the employment contract. Such a clause plainly has impact on an individual's trade and, therefore, applying the concept of 'restraint of trade', such a clause will only be enforceable if the clause is no wider than is reasonably necessary to protect the employer’s legitimate business interests.

In this recent case, the key question was whether a clause providing for repayment of a discretionary bonus was a restraint of trade.

In the relevant employment contract, discretionary bonuses were expressed to be "conditional" on the employee remaining in employment (and not being in his notice period) for a period of three months after payment of the bonus.

The employee in this case had received a bonus of £187,500 (on top of his usual salary of £65,000 p.a.) and then given notice a month later. He resisted repaying the bonus and the employer brought proceedings to recover the sum.

After reviewing the case law in this area, the judge decided the bonus clawback clause was not a restraint of trade. The operation of the clause did not prevent the individual from carrying out his trade, as he was still entirely free (after the notice period) to work elsewhere; rather, the clawback clause simply made it costly for him to do so.

This case provides welcome comfort to employers that such clauses will be upheld.

However, employers should always keep in mind the management time and cost involved in recovering any such sums through the courts, the likelihood of recovery against an individual (e.g. if they have quickly spent the bonus and have few other assets), as well as the publicity involved with public court proceedings.