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.’
