The Court of Appeal (CA) in the recent case of Egon Zehnder Ltd v Tillman, decided that an employee should not be subject to an injunction restraining her from working for a competitor for six months from termination. The CA determined that the post-termination covenant in her contract was too broad.
Ms Tillman’s contract stated she should not “directly or indirectly engage or be concerned or interested in any business…” (emphasis added). The CA concluded:
- Despite the inclusion and comparison with the clause in the contract which permitted Ms Tillman to hold minority shareholdings during her employment, the court could not: a. “construe well-understood words or phrases in a manner contrary to their natural meaning”; and b. there must be “genuine ambiguity” before the principle of preference of enforceability to unenforceability can be invoked.
- The CA could not sever the offending words as the clause would still be too wide since indirectly it could still refer to a shareholder and severance can only be used with distinct covenants and not to parts of a single covenant.
An interesting reference was made to a case currently waiting a decision from the CA “which might be said to run counter to this stream of authority” although the CA did state the circumstances were “arguably different” so the impact, if any, on this principle is yet unknown.