In an increasingly competitive professional environment, companies in Luxembourg seek to secure their investment in human capital. Among the contractual mechanisms used is the so-called clawback clause, which allows the employer—under certain conditions—to recover specific financial benefits granted to the employee in the event of early departure. While effective in deterring opportunistic resignations, this mechanism raises concerns regarding the respect of employees’ fundamental rights.
Behind this Anglo-Saxon concept lies a recovery mechanism: the company reserves the right to request repayment of a benefit granted (bonus, signing premium, training costs) if the employee voluntarily leaves the company within a specified period. The aim is clear: to deter abrupt departures, secure investment, and prevent opportunistic behaviour.
Although permitted, this type of clause raises significant legal issues. Under Luxembourg labour law, the freedom to resign is a fundamental principle, expressly enshrined in Article L.121-4 of the Labour Code. A clause cannot, under the guise of compensation, render resignation economically unsustainable.
Luxembourg case law provides strict oversight of such clauses. In its decision dated 22 May 2025 (No. CAS-2024-00151), the Luxembourg Court of Cassation confirmed the invalidity of a clawback clause deemed disproportionate. The clause required the employee to reimburse a premium received in the event of departure within three years, for an amount equivalent to 10% of their gross annual remuneration. Owing to the lack of a clear distinction between an exceptional premium and a performance-related bonus, and in view of the financial burden imposed, the clause was held to infringe the employee’s freedom to resign, in breach of Articles L.121-3 and L.121-4 of the Labour Code.
To be valid, a clawback clause must meet strict criteria. It must be clear, time-limited (6 to 12 months), proportionate to the amount paid, and must not create a contractual imbalance. It must not turn a benefit into a coercive tool. The employee must remain free to resign without facing an unreasonable financial penalty.
Lastly, Article L.121-3 of the Labour Code states that a contractual clause may not restrict the rights of the employee or increase their obligations, unless it is more favourable to them. This principle must guide the drafting of any clawback clause.
If a balance is achievable, it remains precarious. Resorting to a clawback clause therefore requires rigour, transparency, and a measured approach. The goal is not to lock in the employee, but to build a more responsible contractual relationship.
Maître Sabrina Martin, Founding Partner at Martin & Condrotte Avocats à la Cour, assists you in reconciling corporate performance with respect for employee rights.