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In the recent high profile case of Egon Zehnder v Tillman, the ruling of the Supreme Court has provided clarity in relation to how businesses should approach the drafting of non-compete clauses in employment contracts.
Egon Zehnder v Tillman – Case details
Mary-Caroline Tillman joined Egon Zehnder, who are a management consultancy and executive recruitment business, in 2004. After several promotions, she became the company’s Head of Global Financial Services.
In January 2017, she decided to leave Egon Zehnder to take up a new role with industry competitor, Russell Reynolds Associates, in May 2017. In her employment contract with Egon Zehnder, it included various clauses, including one which prevented her from working for a market competitor for six months.
Another significant restriction included in her contract was that she could not:
“…directly or indirectly engage or be concerned or interested in any business carried on in competition with any of the businesses of the Company or any Group Company which were carried on at the Termination Date or during the period of 12 months prior to that date and with which you were materially concerned during such period.”
Ms Tillman accepted that she would need to fulfil her obligations in relation to various clauses within her contract which restricted her from poaching Egon Zehnder clients and employees. However, Ms Tillman believed that the restriction which stopped her from work for another competing company was too wide ranging to be enforceable.
Court proceedings
Egon Zehnder took legal action against Ms Tillman in April 2017, seeking an interim injunction to enforce the non-compete clause and prevent her from working for Russell Reynolds Associates. This was initially granted by the High Court.
The Court of Appeal subsequently overturned the decision in July 2017. The case then went to the Supreme Court at the beginning of this year.
The part of the clause in dispute that the Court focused on was the reference to “interested in…” and how it should be applied. Ms Tillman’s argument was that the wording in the clause was unreasonable as it stopped her from having any shares in a market competitor. Egon Zehnder’s argument was that the phrase did not prevent this. Even if it did, then the wording could be disregarded or removed and the clause would still be enforceable.
The Court of Appeal found that this wording was too wide ranging to be included in a non-compete clause, as it stopped Ms Tillman from having shares in a competing business, irrelevant of how many shares she held.
The case then went to the Supreme Court, who ruled in favour of Egon Zehnder and overturned the Court of Appeal ruling. The Supreme Court found that the phrase “interested in…” in Ms Tillman’s contract could be removed and that the non-compete clause would still be enforceable. The Supreme Court said:
“First, the words “or interested” are capable of being removed from the non-competition covenant without the need to add to or modify the wording of the remainder. And, second, removal of the prohibition against her being “interested” would not generate any major change in the overall effect of the restraints.”
Comment
It is important that employers give very careful consideration to the drafting of post-termination restrictions where they are seeking to protect their business when an employee leaves. The position remains that such covenants should go no further than what is necessary to protect an employer’s legitimate business interests (e.g. confidential information, trade secrets and business relationships).
This decision on the face of it is an ‘employer-friendly’ one in that employers may be able still to enforce reasonable restrictions, even where there may be an element of unreasonableness. However, the Supreme Court did state that ‘the courts must continue to adopt a cautious approach to the severance of post-employment restraints’ and we would always recommend that post termination restrictions are drafted with our legal assistance to ensure that they are reasonable and have the best chance of being enforceable if a dispute arises.
How Nelsons can help
For further information or to comment on this article, please contact our Employment Law or Intellectual Property teams in Derby, Leicester and Nottingham on 0800 024 1976 or via our online form.