Copyright Moore Barlow LLP (Moore Blatch and Barlow Robbins merged May 2020)

Ruling on unreasonable covenants comes as a relief

Tillman v Egon Zehnder Limited.

A recent judgement that unreasonable covenants will not necessarily prevent enforcement of remaining restrictions will undoubtedly come as a relief to many employers.

Ms Tillman (a departing senior employee) tried to extricate herself from six-month non-compete restrictions, arguing that the wording of one of the clauses was so wide she was effectively prevented
holding any shareholding in a competitor – therefore an unreasonable restraint of trade and unenforceable.

The Supreme Court agreed. However, they held that the offending wording could be removed thereby removing the unreasonable effect and making enforceable the remainder of the covenant.

The two factors which the Supreme Court considered to be critical questions of severance are:-

, there can only be removal of words if, once removed, there is no need to add or modify what remains; and
, removal should not generate any major change in the overall effect of all the post-employment restraints in the contract.

This judgement was a reversal of the Court of Appeal authority, which had been applicable for 99 years, and loosened the severance test quite significantly.

LEGAL OPINION

Whilst employed, an employee – especially if they are senior – is likely to have access to important, sensitive information about their employer, the business and its future plans, therefore putting an employer in a vulnerable situation if that employee’s employment is terminated.

It is for this reason that post-termination restrictive covenants are usually included in employment contracts. However, unless they protect a legitimate business interest and the protection is no more
than is reasonably necessary to protect that interest, such covenants will be void.

If you would like your contracts reviewed and/or re-drafted to ensure they are effective, enforceable and tailored to protect confidential information and business interests, we’d be happy to help.


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