The eagerly anticipated decision in Tillman v Egon Zehnder Limited has been published today (3 July). It is the first time in almost one hundred years that the Supreme Court has considered whether the scope of a post-termination restrictive covenant was too wide. The company has succeeded in its appeal that the clause was enforceable.
In order for a post-termination restrictive covenant to be enforceable, it must aim to protect an identifiable legitimate business interest (such as stable client relationships), and must not go further than reasonably necessary to protect that interest.
Ms Tillman was employed by Egon Zehnder as a managing executive with global responsibility. Her employment contract contained a clause restricting her from working for a competitor for at least six months after her employment ended. The clause included wording that Ms Tillman should 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”.
The point of dispute in the case was the inclusion of the words “or interested in”. Initially, the company succeeded with an injunction in the High Court restraining Ms Tillman.
Ms Tillman appealed that the clause went too far in protecting a legitimate interest because it would prevent her from holding even a small number of shares for investment purposes. The company argued that the principle of ‘severance’ could be used to cross-out the offending words and preserve the remaining obligations in the clause.
At the Court of Appeal, the company’s argument on severance was rejected on the basis the clause was one single construction that could not be severed. This led to the situation where the whole case turned, in effect, on the absence of commas to separate each of the verbs in the clause. In rejecting the company’s argument, the Court of Appeal applied a ninety-nine year old case authority.
The Supreme Court has unanimously accepted the company’s appeal and reversed the Court of Appeal decision. The Supreme Court did agree with Ms Tillman that the words “interested in” were unreasonably wide. However, they agreed with the company that the words “interested in” could be deleted, without affecting the remainder of the clause. Severance is permitted as long as there is no need to add or modify words to the clause, and as long as the changes do not alter the overall effect of the contractual obligations.
The decision will be a huge relief to employers. If the Supreme Court had rejected the company’s appeal, employers could have been placed in the position of trying to update their restrictive covenants across their organisation. The language used in Ms Tillman’s contract was a typical form of words used extensively by most employers.
However, employers still need to be aware that the case preserves the position that restrictive covenants can be a restraint of trade when used in employment contracts, and professional advice should be obtained to make sure the guidelines are complied with.
If you have any further questions about this case or the topic of post-termination restrictive covenants please do not hesitate to contact our expert employment team on 0161 941 4000 or by email email@example.com.