Landmark case on restrictive covenants

The decision last week, in Tillman vs Egon Zehnder Ltd [2019] UKSC 32, will provide reassurance for many employers―covenants are commonplace in contracts for senior executives in financial services and professional services. The court considered whether a post-termination non-competition covenant preventing an ex-employee from being ‘interested in’, or in other words, owning shares in, a competitor for six months was too wide and therefore made the covenant unenforceable. The Supreme Court held that the words ‘interested in’ could be erased from the covenant, leaving the rest of it valid and enforceable without need for further change. This decision reversed a century-old Court of Appeal authority.

Raoul Parekh, partner at law firm GQ|Littler, said: ‘While employers have dodged a bullet this time, 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.

‘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.’

Beth Hale, partner at CM Murray, said: ‘This decision provides some welcome clarity―as well as some degree of flexibility―for those drafting restrictive covenants and those seeking to enforce them.

‘Although the Court gave a wide interpretation to the wording “interested in” in the covenant so as to hold that it included even a minority shareholding, it will come as a relief to the many employers who have used this language in post-termination restrictions for their employees that the Court held that the offending words could be severed from the clause. Employers should, of course, still ensure that their covenants are carefully drafted and tailored to their particular needs and are tightly drafted.

‘However, the liberal approach taken by the Supreme Court to deletion of offending words, provided such deletion does not cause major change to the effect of the promise, gives employers some leeway to defend broad covenants in the hope that the courts will “correct” any drafting errors.’