UK: Supreme Court Saves Otherwise Unenforceable Non-Compete Covenant In Tillman V Egon Zehnder Ltd

What happens if part of a non-compete restriction in an employment contract is too wide? Is the employee free to compete because the whole restriction can't be enforced against them, or can the courts come to the rescue of the employer by effectively crossing out (known as 'blue-pencilling') the part which is too wide and allowing the employer to enforce the rest?

In Tillman v Egon Zehnder Ltd, the Supreme Court (our highest court) rules that courts can in effect cross out the part that is too wide and enforce the rest. In reaching its decision, the Supreme Court lays down the test for when the courts are able to do this.

Background

Departing employees are often in a position whereby they can take advantage of confidential information, client details and business plans relating to their employer's business after their employment ends. They may use this information for the benefit of a new employer or to set up a rival business that competes in the same space as their employer. This can do serious damage to their former employer's business and is something many employers are concerned about.

In order to try to protect their confidential information and other business interests, many employers include provisions in their employment contracts which restrict employees' activities for a limited period of time after their employment ends. These terms are called restrictive covenants or post-termination restrictions. Examples are terms which try to prevent employees soliciting customers or clients, suppliers or other employees, or acting in competition.

Whilst the Courts recognise the need to allow employers to protect their businesses from departing employees, they also acknowledge that there is a public interest in ensuring that employees are not unjustifiably restricted in what they are able to do after the end of their employment, as this may impact on their ability to earn a living using their own skills and experience. Over the years, the courts have tried to find a balance between these two competing interests.

As a result, it is well-established by our courts that a restrictive covenant will be void for being in 'restraint of trade' unless the employer has a legitimate business interest to protect and the protection sought is no more than is reasonably necessary to protect that interest. In considering reasonableness, the court will consider whether some lesser restriction would give the employer enough protection.

What happened in the case?

In this case, the employee, Ms Tillman, a senior employee of an executive search firm, tried to extricate herself from a non-compete restriction in which she had agreed that she would not for six months after the end of her employment "directly or indirectly engage or be concerned or interested in any business carried on in competition with any business of the Company..." This is the type of wording that is frequently used in non-compete restrictions.

Ms Tillman argued that this restriction had such a wide meaning that it prevented her from even having a small shareholding in a competitor. She said that this meant it went too far and could not be enforced against her.

Whilst the Supreme Court agreed that the clause did have this meaning, it decided that the words 'or interested', which were the words which would go too far by preventing Ms Tillman having a shareholding in a competitor, could be removed from the restriction. On the basis that the restriction without these words was reasonable in Ms Tillman's case, this meant that the rest of the restriction could be enforced against her.

An injunction which had previously been granted by the High Court to prevent Ms Tillman from breaching her non-compete restriction, but had been overturned by the Court of Appeal, was reinstated - even though the period of the non-compete restriction had long since expired.

The Supreme Court ruled that the test for deciding whether words which make a restrictive covenant unreasonable can be severed (in effect, crossed out) in employment cases is that:

(i) words can only be removed if there is no need to add to or modify the wording that remains

(ii) removal of the words should not generate any major change in the overall effect of all the post-employment restraints in the contract (i.e. their legal effect).

What does this mean for employers?

Whilst employers may welcome this decision, it is a good idea to:

  • review the post-termination restrictions (not just any non-compete restrictions) in your standard employment contracts (and any other documents such as shareholders agreements) and make sure they go no further than is reasonably necessary to protect your business from departing employees. As part of this, you should consider whether the wording may prevent a departing employee from holding a small shareholding in a competitor, and ensure such shareholdings are excluded or carved out
  • look carefully at how the restrictions are worded – do they enable a court to cross out any words that go too far easily, and without affecting the meaning and effect of the rest of the restriction? If not, they should be reworded with this in mind.

Tillman v Egon Zehnder Ltd

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions