August 31, 2017

Protecting Business Interests: Don't Get Stung by an Overly Wide Non-Compete

In Tillman v Egon Zehnder Ltd [2017] EWCA Civ 1054 the Court of Appeal examined the enforceability of a non-compete covenant.

Ms Tillman was the global co-head of financial services at Egon Zehnder Ltd (EZ), a professional services company. Her contract of employment contained a non-compete covenant preventing her from working for a competitor of EZ for a period of six months after the termination of her employment. Ms Tillman resigned and notified EZ that she wished to start working for one of its competitors. In reliance on the non-compete covenant, EZ sought an injunction to prevent her from doing so.

The Court of Appeal held that the covenant was not enforceable because it was too wide. The main reason for this was that it prevented Ms Tillman from being “interested in” a competing business, which effectively prevented her from holding any shares in a competitor. This was an unreasonable restraint of trade. The Court then considered whether the words “interested in” could be severed from the covenant, leaving a valid restriction. It found that it could not be severed because (i) the covenant would still be too wide without those words as it would still prevent her from being “concerned” in any competing business, which could also cover being a shareholder; and (ii) severance can only take place where there are distinct covenants; here, the non-compete restriction was contained in one single covenant.

It is important to note that there was no suggestion that Ms Tillman wished to hold any shares in a competitor and, as such, the covenant was found to be unenforceable on a purely theoretical basis. This highlights the importance for employers of having carefully considered and well-drafted covenants.

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