Restrictive Covenants – Landmark Ruling from the Supreme Court

Compensation
posted by KeithDaniel

In the case of Tillman v Egon Zehnder Ltd, the Supreme Court has upheld a non-compete restriction in the first employment competition case to have reached the court in over a century.

Ms Tillman was a former investment banker for management consultancy firm Egon Zehnder. Her employment contract included a non-compete clause that aimed to prevent her from working for a direct competitor for six months after her employment terminated. The clause stipulated that she must not “directly or indirectly engage or be concerned or interested in any business carried on in competition with any of the businesses of the Company or any Group Company”.

When Ms Tillman left Egon Zehnder she was offered a job with a competitor. Egon Zehnder obtained an injunction from the courts to prevent Ms Tillman working for the competitor; relying on the non-compete clause.

The Court of Appeal (CA) held that the non-compete clause was unenforceable as it was unreasonably wide. The CA stated that the clause aimed to prevent Ms Tillman from being “interested in” any competing business. In theory, this would prevent her from holding even a minimal shareholding in a competitor.

Egon Zehnder appealed to the Supreme Court who ruled in its favour, holding that the words “interested in” could be removed from the clause whilst allowing the rest of the clause to remain enforceable. The injunction was therefore reinstated.

This decision will be welcomed by employers as the Supreme Court was prepared to rule in Egon Zehnder’s favour despite the fact that the non-compete clause was very wide as originally drafted.

However, employers should still note that restrictive covenants will be void if they go further than is reasonably necessary in attempting to protect the employer.

Now is the opportune time for employers to review the restrictive covenants in their employee’s contracts to ensure that they are enforceable, and potentially to save time and expense in potential future litigation.

If you are an employer and would like us to review your restrictive covenants, or if you are an employee seeking advice as to whether a restrictive covenant in your employment contract is enforceable or not, then please contact us at 029 2034 5511 or employment@berrysmith.com