Restrictive covenants under scrutiny in landmark case

In the case of Tillman v Egon Zehnder Ltd, the Supreme Court is considering whether professional services firm Egon Zehnder unreasonably restrained trade by means of a covenant preventing its former employee, Mary Tillman, from taking a job with a competitor for six months.

The claimant had worked for Zehnder for 13 years, most recently as co-global head of the financial services practices group. She handed in her notice in January 2017 and was placed on gardening leave.

Her employment contract contained a ‘non-competition clause’ (aka restrictive covenant), which meant she could not be ‘engaged, concerned or interested in’ any business in competition with Zehnder for 6 months following her termination (i.e, after the gardening

leave period). Non-compete clauses are very common in the employment contracts of high-level staff in the professional services sectors. Tillman argued that the clause was unreasonable because it was too wide. It would have prevented her from becoming a shareholder in a competitor, although she had no intention of doing so.

Legal opinion

If the Supreme Court finds in favour of the claimant, any contract with such a covenant could become invalid, meaning that employers can no longer ensure leavers don’t go straight to a competitor. Therefore, such contracts would need to be reviewed and potentially re-written.

This would cause problems because employers can’t impose changes to employment contracts unilaterally. They must either have authority in the contract to make the amendment, or the employee’s agreement, or, in extreme cases, they must dismiss the employee and offer them re-engagement with an amended non-compete clause in their new (otherwise unchanged) contract.

This leaves employers vulnerable to unfair dismissal claims. It could also give employees the opportunity to negotiate more favourable terms with regard to pay, holiday and bonuses, in exchange for allowing the clause to be altered.

We look forward to the decision of the Supreme Court and will keep you posted.