There is nothing more satisfying for a certain type of lawyer than to help their clients find a loophole to get out of their obligations.
Tillman v Egon Zehnder Limited (2017) is such a case. It concerned a 6 month non-compete obligation imposed on a senior employee of an international head-hunter. The relevant clause in the employment contract prevented the employee from being:
“directly or indirectly engaged or be concerned or interested in any business carried on in competition with any business of the Company…” (emphasis added)
The contract also contained a similar clause preventing the employee from holding outside interests during the term of employment. As is usual this clause contained a saving for small personal investments (up to 5% of the shares of any publicly quoted company). A similar saving should have applied to the post termination non-compete but, to the likely embarrassment of those concerned, this was missing.
The employee left to join a competitor and the employer sought an injunction. The Court of Appeal upheld her argument that the post termination non-compete was void. This was on the basis that the restriction preventing her from being “interested in” a competitor meant that she could not hold shares in a competitor - however minor that holding might be. It was held that this was an unreasonable restraint of trade because the restriction in a competitor was wider than reasonably necessary to protect the employer’s legitimate business interests. It did not matter that the employee did not, in fact, hold any shares or want to hold any shares – it was enough that it was theoretically possible.
That was not the only surprising aspect of the judgment. The court also refused to exercise its discretion to sever the offensive words “or interested in”.
This was on the basis that the court only has the power to sever separate covenants and not parts of a single covenant – i.e. rejecting the notion that the court can simply apply a blue pencil to cross out the offensive parts of a covenant.
Other courts have reached differing views on apparently similar wording and so we are in the unsatisfactory position where if your covenants are overly broad the eventual outcome will depend upon the attitude of the judge who hears your case.
Over the years, the courts have taken different approaches to claimants who seek to identify technical deficiencies with the drafting of their restrictions as a way to defeat the restrictions. This decision is perhaps a relatively extreme example of the success of that tactic but decisions of this kind encourage employees (and clever lawyers) to look for loopholes. It also acts as an important reminder to employers that a huge amount of care is required in drafting restrictions of this nature.
UPDATE: 19 June 2018
Permission to appeal to the Supreme Court was granted in February 2018. We would expect the appeal to be heard in late 2018 at the earliest, with a judgement in Spring/Summer 2019.