Employment Law Solutions. Expert advice... more personal

Post-termination restrictive covenants – importance of careful drafting

The Court of Appeal in the case of Tillman v Egon Zehnder Ltd has held that a non-compete restrictive covenant was invalid because it was too wide.

Background

Ms Tillman started work for Egon Zendher (“the Company”) in 2004 as a consultant and was quickly promoted to partner. In 2017, she resigned with notice to work for a competitor. The Company issued proceedings against her for breach of contract, alleging that she was in breach of a non-compete restrictive covenant in her contract of employment with it.

The non-compete clause provided that for six months from the termination of her employment, Ms Tillman would 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 which were carried on at the Termination Date or during the period of twelve months prior to that date and with which you were materially concerned during such period”.

Ms Tillman argued that the non-compete restriction was void as it was too wide and went further than reasonably required to protect a legitimate business interest. Ms Tillman argued that the words “being interested in” made the clause unenforceable as it could even prevent her from having a minor shareholding in a competing business (although this was not her intention).

Decision

The High Court originally upheld the non-compete restriction and granted an injunction to restrain the breach. However, the Court of Appeal disagreed.

The Court of Appeal agreed with Ms Tillman and held that the words “interested in” prevented Ms Tillman from holding even a minor shareholding in a competing company and this rendered the non-compete restriction impermissibly wide and therefore void. This was despite the fact that Ms Tillman’s capacity in the new business was as an employee and presumably this was what the clause was intended to restrict her from.

Comment

Effective and enforceable post-termination restrictive covenants must be designed to protect a legitimate business interest and go no further that is reasonably required to protect that interest. Courts will take a strict approach when considering restrictive covenants that involve a restraint of trade and this case is a reminder that employers must be careful when drafting post termination restrictions. They should be carefully worded and tailored accordingly to stand the best chance of enforcing them if necessary.

If you would like to speak to us about post termination restrictive covenants, please feel free to email us  or contact us on 0191 282 2880 for a no obligation chat.

This entry was posted in Law. Bookmark the permalink.

Comments are closed.