Can tribunals / courts change or amend express restrictive covenants in employment contracts?
Employers are entitled to protect their business needs and proprietary interests. Many employers will include post-termination restrictions in their employment contracts which attempt to prevent employees from entering direct competition with the employer, poaching clients and enticing employees. Such clauses are generally unenforceable unless they are proved to be reasonable and necessary to protect the legitimate business interests of the employer.
Case Summary
It has long been established that the courts will not sever or interfere with the wording or construction of these restrictions, and they will ‘stand or fall’ as they are. However, the Supreme Court has recently departed from this principle in the case of Tillman v Egon Zehnder Ltd.
Ms Tillman started working for Egon in 2004 as a consultant. Her contract of employment included several post termination restrictions, including a non-competition clause preventing her from working for a competitor for a period of six months “directly or indirectly to engage or be concerned or interested in any business carried on in conjunction with any of the business of the Company or Group Companies which are carried out at the termination date……”. After several promotions and 13 years, she resigned as Global Head of Investment Banking, with the intention of relocating to New York and work for a competitor. Egon argued that she was in breach of the restriction and attempted to secure an injunction to prevent her from starting work within the six-month restrictive period.
When assessing the enforceability of such restrictions, the court will address the following factors;
- What does the clause mean? Is it clear and unambiguous or vague?
- Has the employer proved that they have legitimate business interests to protect?
- Consider the covenant wording to determine if it is no wider than is reasonably necessary to protect those interests.
- Is it reasonable to grant an injunction in all the circumstances of the case?
At first instance, Egon managed to enforce the restriction. Ms Tillman appealed to the High Court, arguing that the clause even stopped her from even having a minority shareholding in a rival company, and that made it too wide. The High Court disagreed, stating that although the wording was ambiguous, given her special position, the restriction was reasonable. Ms Tillman appealed to the Court of Appeal. They reversed the decision and struck out the clause because it was too wide.
Egon appealed to the Supreme Court
The Court agreed that the clause could include holding a minority shareholding but said that the words “or interested” could be deleted. That removed the unreasonable element of the clause, rendering the remaining part of the covenant reasonable. This decision to sever or remove words from a clause broke a century old principle. But in doing so, important guidelines were set;
- Does the remaining clause make sense without amendment?
- Does this impact on the overall effect of all the post termination restraints?
Words can only be removed if the first question is answered “yes” and the second is “no”.
If you need professional advice on the subject or want to use our HR consultancy for drafting such clauses, please contact us here.
