The Supreme Court has given the first Judgment of the UK’s highest court for 100 years on the subject of Restrictive Covenants, in Tillman v Egon Zehnder Limited.
Ms Tillman was engaged by the company as a highly paid consultant in the financial services practice area of Egon Zehnder’s executive recruitment business; she was later promoted to partner. Amongst various restrictive covenants in her contract of employment was one which stated that she would not:
“directly or indirectly engage or be concerned or interested in any business carried on or in competition with [the Company] …”
When Ms Tillman left and started working for a competitor, the company sought an injunction against her to prevent her from doing so.
The case centred on the issue of whether the words “or interested in”, which would unreasonably preclude her even holding a small shareholding in a competing company, could be severed so as to render the rest of the clause enforceable.
The Supreme Court held that the words could be severed and the restrictive covenant preventing Ms Tillman from working for a competitor was therefore valid. The decision confirms that an entire covenant will not necessarily be struck down on the basis that a few words go too far.
This case demonstrates that weak drafting can prolong disputes. Whilst most issues will be resolved through correspondence without the need to go to court, an employer’s position will be strengthened by having well-drafted restrictive covenants in place.
Employers should carefully consider:
- What business interests you are seeking to protect? (e.g. relationships with clients built up over the years).
- What type of restriction is necessary. The more draconian a restriction, the less likely it is to be enforceable (e.g. a non-compete clause contrasted with a clause preventing active solicitation of customers).
- When any restrictions are entered into. A covenant will be judged from the point in time at which it was entered into rather than when the relationship ended.
- Agreement by the employee. A covenant will not be enforceable unless the employee has expressly agreed to it.
If you are an employer considering including restrictive covenants in your employment contracts, contact Langleys for advice on drafting and implementation by calling 01904 683085.