The case of Egon Zehnder Ltd v. Mary Caroline Tillman is another useful reminder to ensure that restrictive covenants are fit for purpose and, whilst in this case the covenants were upheld, it is also a reminder to ensure that on promotion, restrictive covenants are updated if necessary.
The employer in this case hires candidates already working in the field within which they want to operate, and as a result most new employees have established careers and experience. It recruits people initially as consultants, but employees may be promoted to principal and eventually to partner should they do well in their role. The claimant had a distinguished career in investment banking and was recruited as a consultant to work in the company's financial services group in 2004. The company viewed the claimant as "a considerable prize" and, as a result of this, her starting salary and guaranteed bonuses were higher than that of the average consultant for the company. The claimant rose through the ranks of principal and partner quickly, ending up in the position of co-Global Head of the Financial Services Practice Group in 2012, which accounted for 18 per cent of global billings. However, despite her multiple promotions she did not sign a new contract of employment at any stage.
The claimant resigned on notice, and shortly after this, the company terminated her employment and gave her payment in lieu of her remaining notice period. The claimant notified the company that she wanted to start working for one of the company's competitors. The company issued proceedings arguing, that the claimant's proposed actions would breach the six-month non-compete contained in her contract, and sought injunctive relief. There was no argument that her other post-termination restrictions applied (non-solicitation, non-dealing and confidentiality).
The claimant argued, assessing the restrictions at the point of signing the contract (ie. in 2004), that the non-compete was too wide, both territorially as there was no territorial limit, and in terms of being interested in a competing business as this would prevent her from having a minor shareholding in a competitor for investment purposes, and therefore went beyond just protecting legitimate business interests and was consequently void.
The High Court upheld the non-compete clause and granted the claimant's employer injunctive relief.
The court acknowledged that the point of signing the contract was the correct time to assess the reasonableness of the restrictive covenants. However it also held that it is legitimate to take into account the wider circumstances of the recruitment. Here the company had clearly been intending to groom the employee and promote her as soon as possible, and as a result she had been given more access to clients and confidential information than would otherwise have been expected for a consultant.
In terms of the claimant's territorial argument, the court held that the clause was actually limited to those geographical areas which which the claimant had been materially involved in and therefore did not have global reach.
Turning to the claimant's argument in relation to being interested in competing businesses, the court held that her contract dealt with shareholdings elsewhere and so the non-compete did not need to address this.
This case is a useful reminder of the principles relating to enforceability of restrictive covenants and usefully illustrates how they operate in the situation where an employee has not entered into new covenants upon promotion. This case is especially helpful where employees are recruited with promotions in mind. However it is worth noting that, had the claimant not been such a "prize" and tipped for greatness at the time of her recruitment, the restrictions may well have been held to be too widely drawn.