Businesses increasingly look to protect their investment in sponsored workers with “clawback” agreements, seeking to recoup immigration fees from the employee if employment terminates. With sponsorship on the rise post-Brexit, businesses are asking questions about how to create an effective clawback agreement.

This article explores the key considerations and risks involved in these arrangements.

Employers support employees with the high cost of visa sponsorship

The average cost of sponsoring a Skilled Worker for five years can exceed £10,000. Most of the fees incurred are government fees including a visa application fee, a fee to assign a Certificate of Sponsorship, an Immigration Skills Charge, an Immigration Health Surcharge, a fee for attending an appointment, a priority processing fee and so on.

In most cases, the majority of these costs are borne by the employer. Sponsoring an employee therefore entails a significant up-front investment. As a result, some businesses are hesitant to offer jobs to candidates who require sponsorship, instead preferring to recruit from the settled labour market. Such a policy is supported by the government in their promotional material for employers, which explicitly wants to “encourage employers to first consider domestic recruitment options within the UK”. However, it potentially poses the risk of a spurned candidate bringing an employment tribunal claim for race discrimination claim in an employment tribunal (explored further in our article Employment law and immigration law: two awkward siblings).

As employers are continuing to struggle with labour shortages and skills gap post-Brexit, the sponsorship of overseas talent is prevalent. We are increasingly asked to advise on ways to protect an employer’s investment in a sponsored employee. One method is to require sponsored employees to agree to repay the immigration fees associated with their application if their employment terminates. This is commonly referred to as a “clawback” agreement. These arrangements are increasingly common but are not without some risk. Careful thought and drafting are essential.

Don’t cause flaws in clawback clauses: key considerations

  •  Employment contract or side letter? Is the clawback obligation going to be embedded as a clause in the employment contract itself, or is it going to sit in a separate side letter that will be issued to the employee? If the latter, the employee’s counter-signature will be needed to evidence their consent to the agreement. And whichever form it takes, it must be clear that the employer has the authority to make a deduction from the employee’s final salary payment for these costs.
  • Is it enforceable? It’s possible that an employee will seek to argue that a repayment obligation is either a penalty or a restraint of trade, rendering the obligation unenforceable and invalid. Whether or not this argument would be successful remains untested in law (as far as we know). What we do know is that repayment obligations in the (slightly different) context of training costs are enforceable, provided that they are proportionate to the loss suffered by the employer. In any event, the obligation may still have some value to the employer as a deterrent.

  • Is it proportionate? The best way to mitigate against an argument that a repayment clause is unenforceable is to carefully tailor the obligation so that it is proportionate. This could include:

    • Incorporating a ‘sunset’ provision, so that the obligation to repay the fees extinguishes after a particular period of time.

    • ‘Tapering’ the obligation, so that the amount of the fees that needs to be repaid incrementally decreases over time.

    • Excluding some elements of the immigration fees. The Immigration Skills Charge, for one, must be excluded (Home Office guidance states that the employer’s sponsor licence may be revoked if the charge is passed on to the sponsored employee). We also think that it is best practice to exclude the Certificate of Sponsorship fee (at £199, it is relatively low compared to the value that the employer will get from the sponsored employee). Further, it may be considered unreasonable to include the professional fees that were incurred in applying for the visa, as this is usually a commercial agreement between the employer and its professional advisers.

    • Excluding certain reasons for termination, such as redundancy or where the employer is in fundamental breach of contract and the employee resigns as a result.
  •  Is it discriminatory? Employers should be mindful of the risk of an indirect race discrimination claim being brought in respect of a repayment obligation. This would be on the basis that the repayment requirement is likely to have a worse impact on non-British nationals. Indirect discrimination can, however, potentially be justified if there is a good reason for it. As far as we know, the specific point has not yet been tested in the tribunals, but employers should be prepared to explain why the repayment clause is both necessary and proportionate. It’s also arguable that a lengthy repayment provision indirectly discriminates against women, older or disabled employees, because these groups may be less likely to be able to remain in stable employment and so may have shorter lengths of service. In addition, employers should be wary about imposing repayment obligations on certain sponsored employees but not others, as this raises risks of direct discrimination between different groups.

If you have questions about this topic, please get in touch with a member of our Employment Team or Immigration Team.

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