A recent Court of Appeal decision in the UK (Tillman v Egon Zehnder Limited) found that a post-termination non-compete restriction was unreasonably wide (and therefore unenforceable) on the basis that there was no carve out for shareholdings in the typically broad restriction which provided that the employee could not “directly or indirectly engage or be concerned or interested in any business carried on in competition with” the employer.
The Tillman court declined to sever (or “blue pencil”) the offensive wording and enforce the remaining provisions. Instead, the court invalidated the entire agreement.
Lots of non-compete covenants are broadly drafted and include catchall phrases like “concerned or interested in” and often do not include an express carve-out for shareholdings. As such, we suggest a quick review of your non-compete covenants in the UK (and other Commonwealth jurisdictions such as Hong Kong, Singapore and Canada) to determine if they are at risk of being deemed invalid. Seeking to enforce an invalid restriction could have costly consequences. However, there are steps you can take now, to mitigate the risk of voiding a restriction, even with existing employees.