People Management - 3 July 2019
The Supreme Court has ruled that restrictive covenants preventing an employee from being “concerned or interested” in a competitor for six months after they leave were not too wide to be enforceable – a decision experts say will come as a relief to employers.
This morning, judges overturned a previous Court of Appeal decision and formally reinstated an injunction against a former employee of recruitment firm Egon Zehnder, Mary-Caroline Tillman, which would have prevented her from taking up employment with a competitor had the contractual period of restraint not since expired.
The case sets the precedent that restrictive covenants can be broadly enforceable even if there are elements of the contract a court might deem to have gone “too far”, and that offending words can be removed from a contract if it does not substantially change the overall effect of the restraint.
Andrew Taggart, partner and head of Herbert Smith Freehills' EMEA employment practice, said employers would be relieved, adding that had the result gone the other way, many restrictive covenants – frequently used by businesses to prevent senior employees or key sales or marketing staff from taking knowledge and contacts to a competitor – could well have been unenforceable.
“Instead, the judgment reaffirms that if the court thinks the covenant is basically OK, it will allow some latitude to strike out parts where it feels that it went too far,” he said.
Taggart added: “This doesn’t give carte blanche to lawyers to draft what they like, but it provides a useful safety net and reassurance that odd words here and there can be ignored."
However, Raoul Parekh, partner at GQ Littler, warned employers had “dodged a bullet” with the ruling.
“Egon Zehnder was still forced to go all the way to the Supreme Court to fight its case. No one will want to repeat that,” he said. “This case should act as a wake-up call for employers: now is the time to go through restrictive covenants to make sure that your covenants are enforceable.
“Fixing issues before an employee leaves might cost a few hundred pounds. Fixing them afterwards might cost tens of thousands or be entirely impossible.”
You can read the full article here.