Employment and Immigration Law Update - Enforceability of restrictive covenants


24 July 2019

In its first decision on employee competition for over 100 years, the Supreme Court has ruled on the enforceability of restrictive covenants.

Tillman v Egon Zehnder Ltd [2019] UKSC 32

Following her resignation, T indicated that she planned to work for a competitor business. Egon Zehnder issued injunctive proceedings against her, on the grounds that by working for a competitor she would be in breach of a six-month non-compete clause in her contract of employment.  The clause prevented her from being directly or indirectly engaged, concerned or interested in any business carried on in competition with the employer.  T argued that this provision was unreasonably wide, as the words “interested in” would prevent her from holding even a minor shareholding in a competing business. She claimed that the provision was therefore unenforceable in its entirety, even though she did not in fact hold any such shareholding.

The High Court granted the injunction, but this decision was overturned on appeal to the Court of Appeal. The court held that the words “interested in” did have the effect of preventing a minor shareholding, making the clause too broad in scope. The court refused to ‘sever’ (delete) the offending words from the rest of the clause, which would have otherwise made it enforceable. Egon Zehnder appealed to the Supreme Court.

Supreme Court decision

The Supreme Court has upheld the employer’s appeal. It found that the words “interested in” did prohibit a minor shareholding, making the non-competition void as an unreasonable restraint of trade. However, the court held that these words could be severed from the rest of the clause in order to make it enforceable against the employee. If the offending wording could be removed without generating any major change in the overall effect of the post-termination restrictions, then the clause was capable of being severed and therefore upheld.

Consequences

The drafting of restrictive covenants is notoriously difficult, and this decision will be of great assistance for employers in attempting to enforce restrictive covenants that would otherwise be found unreasonably wide.  Of course, it is always preferable for such provisions to be drafted in such a way that costly arguments over enforceability and/or severability are unnecessary. Employers should ensure that restrictive covenants are tailored to the individual employee and the role they undertake.

This article is from the July 2019 issue of Employment and Immigration Law Update, our monthly newsletter for HR professionals. To download the latest issue, please visit the newsletter section of our website. Law covered as at July 2019.

The content of this article is for general information only. For further information please contact Liz Stevens or another member of Birketts' Employment Law Team.