Supreme Court ruling will come as a relief to employers!

In the case of Tillman (Respondent) v Egon Zehnder Ltd (Appellant), the Supreme Court has ruled that restrictive covenants preventing an employee from being “concerned or interested” in a competitor for six months after they leave were not too wide to be enforceable – a decision which will come as a welcome relief to employers.

Background

  • Ms Tillman joined Egon Zehnder in 2004 and was promoted to Global Head of Financial Services in 2012.
  • As part of Ms Tillman’s contract, she agreed that she would not “directly or indirectly engage or “be concerned” or “interested inany business carried on in competition with any of the businesses of Egon Zehnder” for six months after leaving the business.
  • Non-compete clauses stop an employee from joining a direct competitor or setting up in competition themselves, albeit for a limited period.
  • In 2017, Ms Tillman announced she was leaving to join a direct competitor, Russell Reynolds Associates. She argued the non-compete clause was an unreasonable restraint of trade and was therefore void.
  • Egon Zehnder was initially granted an injunction preventing Tillman from starting her new role.
  • In July 2018, Ms Tillman appealed to the Court of Appeal, which found in her favour. The Court of Appeal set aside the injunction ruling the words “interested in” made the clause an unreasonable restraint of trade and refused to remove them from the contract as it would change the meaning of the clause.   This result left Egon Zehnder without an enforceable non-compete covenant and with a significant liability for legal costs.
  • The Supreme Court have now overturned the Court of Appeal’s ruling, deciding the words were capable of being removed without the need to add to or modify the wording of the rest of the clause, and that doing so would not generate any major change in the overall effect of the restraints.

his decision will allow employers more scope to argue that elements of a restriction should be observed even if the restriction in its full form is too widely drafted to be enforceable.

This will now give employers an opportunity to correct poorly drafted clauses and enforce restrictions where words can simply be removed without losing the sense of the clause. The courts cannot rewrite the clause to make it work but can remove words where appropriate.

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