New Case on Employment Restrictive Covenants for the First Time in 100 Years!

By Joanna Sutton

Senior Associate

A landmark case has decided that where a restrictive covenant is too broad, the offending words in the clause could be removed so that the clause could be enforced.

What Was the Case About?

It concerned a senior employee, Mrs Tillman, working in a recruitment business, Egon Zehnder (‘EZ’). She had a non-compete clause in her employment contract which stated that she could not be engaged, concerned or interested in a competing business.

There were other restrictive covenants in her contract and when she resigned to work for a competitor she confirmed that she would abide by all of them, except the non-compete. EZ did not accept this and sought an injunction.

What Did the Court Decide?

The legal position has always been that restrictive covenants can only be enforced if they go no further than necessary to protect the business interests of the employer, such as confidential information or their client base.

Mrs Tillman argued that the non compete clause in her contract went further than necessary because she could be in breach of it even if she held a small shareholding in a competitor, as this was caught by the words ‘interested in.’

The Supreme Court agreed that the wording of Mrs Tillman’s non compete restriction was unreasonably restrictive, but they decided that the words ‘or interested in’ could be erased from the clause wording to remove the unreasonable effect, and the clause could be enforced.

What Now?

The starting point remains that restrictive covenants will be void unless they go no further than is necessary to protect the employer’s legitimate business interests.

However, this decision was the first time that the highest court in England and Wales has considered the law on restrictive covenants, and the latest case for 100 years.

It confirms that words in such a clause can be removed if doing so would not change the overall effect of the clause, and nothing else other than the unenforceable part needs to be added to or modified.

Employers will be encouraged by the decision allowing them to enforce restrictive covenants, even where there may be an element of unreasonableness.

That being said, the decision emphasised that a cautious approach should continue to be adopted and that there was a possibility of costs consequences for employers who have drafted restrictions too broadly in the first place.

As a result, carefully drafted employment contracts and restrictive covenants continue to be essential to protect a company’s business interests.