Background

Ms Tillman was employed as Joint Global Head of the Financial Services Practice Group by Egon Zehnder Ltd, a specialist executive search and recruitment business (the Company).

In accordance with her employment contract, Ms Tillman was bound by various restrictive covenants, including the Non-Compete which stated that, for six months following the termination of her employment, she could not "directly or indirectly engage or be concerned or interested in any business carried on in competition with any of the businesses of the Company or any Group Company…". There was no exception for small shareholdings – something which is often seen.

In January 2017, Ms Tillman resigned and her employment came to an end on 30 January. She informed the Company that she intended to work for a competitor from 1 May 2017 i.e. before the Non-Compete would expire on 30 July 2017. Ms Tillman said she would comply with all her restrictions except the Non-Compete, which she said was too wide to be enforceable. The Company sought an injunction to prevent her from breaching the Non-Compete and this was granted by the High Court. Ms Tillman appealed to the Court of Appeal on the basis that the words "interested in" effectively prevented her from holding even a minority shareholding in a competing business and went beyond protecting the Company's business interests, rendering it unenforceable. Ms Tillman was successful and the Company appealed to the Supreme Court.

Decision

The Supreme Court held that the words "interested in" did prevent Ms Tillman from holding even a minor shareholding in a competitor and therefore did go further than necessary to protect the Company's business interests. As such, it held they were not enforceable. However, the Supreme Court went on to say that these words could be severed from the restriction enabling the Company to enforce the rest of it.

The Supreme Court overruled the longstanding decision in Attwood v. Lamont [1920] 3 KB 751 which had held that, to sever words from a restriction, they had to be independent and merely technical or trivial. Instead, the court relied on the three-pronged test in Beckett Investment Management Group Ltd v. Hall [2007] EWCA Civ 613:

  1. The unenforceable provision must be capable of removal without adding to or amending the remaining wording (the blue pencil test). Here, the words "or interested" were capable of being removed from the Non-Compete without the need to add to or amend the wording of the rest of the restriction.
  2. The remaining terms must continue to be supported by adequate consideration. This would not usually be an issue where the individual had recently been employed under the contract.
  3. The removal of the provision must not change the character of the contract in such a way that it becomes "not the sort of contract that the parties entered at all". This will always be for the employer to establish. In this case the removal of the prohibition on Ms Tillman being "interested" did not majorly affect the restraints.

The tests were therefore met and whilst the contractual period of the restraints had long expired, the Supreme Court ordered that the injunction be restored and the words "or interested" be deleted from the Non-Compete.

Whilst this decision will clearly be reassuring to employers, this should not be taken as a carte blanche to include unnecessarily restrictive wording in post-termination restraints.

Whenever drafting restrictive covenants, it is essential to draft them carefully, taking into account the role and seniority of the employee who will be bound by them and the extent to which the employer actually needs protection. Where there is a less restrictive way of protecting the Company's business interests, that option should be adopted.

Injunction proceedings are notoriously expensive and going through them may be a bitter pill to swallow to protect one's business interests for the relatively short span of a usual restriction.

As always, prevention is better than cure.