Employment Law

The Importance of Robust Restrictive Covenants

Our team of specialists are ready to help your business today

After what seemed like a long wait(!) the Supreme Court has now passed down its decision in the case of Tillman v Egon Zehnder, which involved the wording and overall enforceability of a restrictive covenant. The restriction in question was a non-compete clause and sought to prevent an employee from working for a competitor for a period of 6 months post-termination.
In this case the restriction itself placed the employee under an obligation not to: “directly or indirectly engage or be concerned or interested in” any competing business. Challenge was raised on the basis of the wording “interested in” being too wide and subjecting the employee in question to detriment. It is worth noting that restrictive covenants are, of course, unlawful unless the party seeking to rely on them can show that they are reasonable to the extent that they protect a legitimate business interest. In this case, the restriction would have prevented the employee from holding a minority shareholding in a competing business.
The Court of Appeal found in the employee’s favour and held that the wording was too wide. The decision was that the restrictive covenant was unenforceable and that the employee would be free to commence employment with a competing business within 6 months of his employment with the original employer terminating.
The employer appealed but the Supreme Court agreed with the Court of Appeal insofar as the wording of the covenant was too wide to be reasonably enforceable. Although the Supreme Court took this view, it did “assist” the employer on the basis that it held that the offending wording should be severed from the entirety of the clause leaving the rest of the clause in tact. The Supreme Court’s decision was that once the clause had been severed in this way, it was in fact, enforceable and the employee in question could lawfully be subject to the non-compete restriction.
Overall, this case is good news for employers but there are no guarantees that, in the event of a dispute, the Court will agree that it is appropriate to sever wording in order to render a clause enforceable. It very much remains the case that employer should give careful and proper consideration when drafting restrictive covenants to the wording being used and to the reasonableness of the restrictions which they are seeking to impose.
If you would like any advice on restrictive covenants or, if you would like us to conduct a review of your restrictive covenants then please contact the advisory team on 01274 864999.

© 2022 Howarths UK