By Sophie Vanhegan - 31 July 2019
To much fanfare and the great excitement of many employment lawyers, the UK Supreme Court recently delivered its first judgment on employment post-termination restrictions for a century in Tillman v Egon Zehnder. What was it all about and what does it mean for restrictive covenants going forward?
In this case, the Supreme Court accepted that the words “interested in” included in a non-compete restriction on a former employee were unenforceable (as they prevented her from simply holding a few shares in a competitor), but held that they could be struck out or “severed” from the rest of the non-compete clause, so that the non-compete became enforceable.
There are a few takeaways from this decision for employers:
Ms Tillman was a head-hunter for Egon Zehnder. In her employment contract, she agreed not to “directly or indirectly engage or be concerned or interested in” any competing business for six months (a non-compete). She resigned and left Egon Zehnder in January 2017, and then sought to work for a competitor in May 2017 (before the non-compete expired). Tillman argued that the non-compete was not enforceable because the words “interested in” prevented her from holding even a small number of shares in a competitor, and it was therefore an unreasonable restraint of trade – as a guiding rule, post-termination restrictions will be in restraint of trade (and therefore unenforceable) if they are wider than is reasonably necessary to protect a legitimate business interest of the employer. The Court of Appeal agreed with Ms Tillman, so refused an injunction prohibiting her from joining a competitor before the term of the non-compete expired.
Following their Court of Appeal defeat, Egon Zehnder appealed to the Supreme Court. The Supreme Court accepted that the words “interested in” were unenforceable, but held that they could be struck out or “severed” from the rest of the non-compete clause, so that the non-compete became enforceable. So, Egon Zehnder won. The Supreme Court held that there are three criteria to meet in order for severance to be possible:
So if you have a post-termination restriction which would be enforceable if you can sever some words within it, these are the criteria which should now be looked at to see if the courts would allow this.