restrictive covenants

Our next case concerns restrictive covenants. The enforceability of covenants can be a problematic area for many employers, especially those involved in sales. For the uninitiated, restrictive covenants are a contractual clause that limits a former employee’s activities post-termination in order to protect a legitimate business interest. These interests can include: clients, staff, competitors and information.

To be deemed enforceable restrictive covenants must be: reasonable, necessary to protect business interest, and last no longer than necessary to protect said interests. Reasonable often relates to how wide the scope of the covenant is and the length of time for an average covenant is between 6-12 months. Any longer and it is usually difficult to enforce.

Restrictive covenant litigation is a High Court matter and this case comes fresh from the Chancery Division.

Today’s question is:

Do the geographic and temporal markets of an employer and its competitors impact how likely a restrictive covenant can be enforced against an employee who leaves to a competitor?

Egon Zehnder, the Claimant and employer who wished to enforce the covenant, was the UK subsidiary of a multinational company specialising in executive recruitment and advisory services for its clients. Its assignments with clients can take several months to complete and the nature of the work meant the Claimant’s employees became familiar with the Client’s inner workings and had insider knowledge of their businesses.

Ms Tilman, the Defendant, was the co-head of the financial services department at the Claimant and was au-fait with many of her Client’s financial positions. Financial services was one of nine departments at the Claimant but was responsible for nearly a quarter of its billing. The Defendant’s contract contained a restrictive covenant preventing her from soliciting clients of, or, working for competitors of the Claimant for six months after her employment terminated. The Defendant had been employed by the Claimant for 13 years when she resigned in January 2017.

The covenant meant the Defendant could not work for any competitors until July 2017 but she had a job lined up for the beginning of May. The job was with a competitor who regularly competed against the Claimant for work and operated in the same markets. The Claimant sought an injunction to prevent this from happening.

The High Court allowed the injunction. The Defendant’s familiarity with Claimant’s client’s businesses and the fact she had worked in the same region as the competitor in the past twelve months meant that the Defendant could use this knowledge to her and new employer’s advantage. Therefore, the Claimant’s restrictive covenant was a just and reasonable means to protect its business interests.