Greetings and welcome back to your weekly dose of case law. Last week’s case was about religious discrimination and focused on expressing views about gay marriage and single parenthood. This week, we have two cases; one concerning restrictive covenants and another concerning tribunal procedure and awards.
The questions this week are:
Are the words “interested in” too broad for the construction of a valid restrictive covenant?
Can the words be removed to leave a valid covenant?
The facts of the case are best found in the High Court update but can be summarised as quickly below.
Ms Tillman joined Egon Zehnder in 2004 and worked her way up to become the global head of financial services. Tillman had covenants in her original contract that were never updated. The covenants included not being able to “directly or indirectly be engaged or concerned or interested in any business carried on in competition with Egon Zehnder”(sic). Tillman was also allowed to hold 5% shares in competitors whilst she was employed.
She left Egon Zehnder in 2017 to join a direct competitor. Egon Zehnder tried to enforce the covenant and the High Court allowed the injunction. Tillman appealed and the Court of Appeal held the words interested in were too broad, as they prevented Tillman from even owning shares – which made them overreaching, and that the words “interested in” could not be severed from the rest of the clause and leave a valid covenant.
Egon Zehnder appealed and the Supreme Court allowed the appeal. The Supreme Court held that the words “interested in” related to shares and, as these were allowed during employment, caused a wide restriction of trade. However, it added that the words could also be removed to leave a valid clause. Therefore, the clause was enforceable and the covenants stood.
The takeaway point:
In this case yes, the words “interested in” are too broad as they can limit share holding and other activities that make the covenant unreasonable.
However, the court can remove the offending words and laid out the test for doing so:
(a) the words in question (“interested in” in this case) can be removed without the need to amend the rest of the clause; and
(b) the removal of the words in question would not generate any major change in the overall effect of the restraints.
Overall this decision gives employers more scope to enforce covenants if poorly drafted clauses meet the test. However, if the covenant is unreasonable, or, the words cannot be removed, it will be a lot harder to enforce. A safer and cheaper route would be to have properly drafted covenants.