The Supreme Court – presided over by five justices, Lady Hale, Lord Kerr, Lord Wilson, Lord Briggs and Lady Arden – recently made a judgment in the case of Tillman v Egon Zehnder regarding the dispute surrounding a restrictive covenant in an employment contract.
Mary-Caroline Tillman joined Egon Zehnder - a global management consulting firm - in 2004. She worked for the company for 13 years, eventually becoming joint global head of its Financial Services Practice Group in 2012.
Ms Tillman had an employment contract containing a non-competition clause, preventing her from engaging or being concerned or interested in any business carried on in competition with Egon Zehnder for six months after her employment ended.
In January 2017, she handed in her notice as she wanted to join US consulting firm Russell Reynolds Associates – a direct competitor of Egon Zehnder. She was then placed on gardening leave with Egon Zehnder seeking an injunction to delay her move.
At the High Court, Ms Tillman challenged the validity of the contract, claiming that - although she had no intention of doing so - the covenant was unreasonable since it also prevented her from becoming a shareholder in a competitor.
She argued that even holding a minority shareholding in a company could be seen as ‘being interested’ in the company and therefore this was too wide a restriction to be enforceable - which meant that the whole clause (including the part about not working for a competitor) was unlawful and should be removed.
At the High Court, the case was heard by Mr Justice Mann who ruled that the covenant did not prevent her from becoming a shareholder in a competitor.
Ms Tillman then took her case to the Court of Appeal, who overturned the previous decision. Lord Justice Longmore said that the clause would still be open to interpretation even if the words ‘or interested’ were omitted.
He stated:
“The question would then be whether a shareholding was covered by the words ‘directly or indirectly engage or be concerned … in any business carried on in competition’. To my mind, being a shareholder in a company carrying on a business is being concerned in that business at any rate ‘indirectly’.”
This is the first time that the Supreme Court has considered the law governing restrictive covenants. They were considering whether part of a restrictive covenant in the employment contract constituted an unreasonable restraint of trade and further, if this could be deleted from the covenant - leaving the rest intact.
On 3 July 2019, the Supreme Court ruled in favour of Egon Zehnder, after determining that if the parts that had been argued as unreasonable were found to be so, then in any event these could be deleted and the remaining non-competition clause would still be valid.
Employers will approve of the decision as it clarifies the situation over whether post termination restrictions are reasonable and the effect if parts of those restrictions were found to be unreasonable, thus highlighting the need for carefully drafted employment contracts and restrictive covenants - especially for senior staff - to protect business interests.
