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Philomena Price
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pprice@se-law.co.uk

New case confirms if you draft your restrictive covenants too widely then they will be unenforceable

by Philomena Price | Dec 20, 2017 |
Employment contract
As a result of some careless wide drafting in a restrictive covenant clause, an employer was unable to stop an employee from going to work for a competitor. This was the finding in the Court of Appeal case of Tillman v Egon Zehnder Ltd. The wording of a non-competition clause was far too wide restricting the employee from being a shareholder in a competitors business which went well beyond what the employer had intended by the covenant. As a result it was therefore unenforceable. This is a warning for employers to only draft covenants to cover what they really need to protect. See further details of this new case below.

So what are restrictive covenants?

Restrictive covenants in employment contracts come in various forms, for instance those which seek to protect the employer's confidential information, customer connections, goodwill, stability of its workforce or prevent solicitation of customers, clients, suppliers, other employees, or general competition after termination.

Why are they used?

During employment, employees may have been privy to all sorts of information which is valuable to the employer such as: confidential information, business plans, details of customers and so on. On leaving employment, an employee could use their knowledge to their (or their new employer’s) benefit. From an employer’s perspective, restrictive covenants can be vital to prevent an employee causing disruption or damage to the business upon leaving employment.

Why is it important to draft restrictive covenants carefully?

Restrictive covenants are void for being a restraint of trade and contrary to public policy unless an employer can show that it is to protect a legitimate proprietary interest and that the protections sought are no more than reasonable having regard to the interests of the parties and the public at large.

If the restrictive covenant is deemed too wide, either as a result of careless drafting or an over ambitious employer, a court may deem the covenant to be unreasonable and thus unenforceable. It is imperative therefore that restrictive covenants are carefully drafted to ensure that they are reasonable and only go as far as needed to protect an employer’s legitimate proprietary interest.

Tillman v Egon Zehnder Ltd – The Facts

In Tillman v Egon Zehnder Ltd [2017], Ms Tillman had a restrictive covenant in her employment contract whereby she was restricted for a period of 6 months following termination, from directly or indirectly engaging or being concerned or interested in any business carried on in competition with her employer as at termination. From the employer’s perspective, the purpose of the clause was to prevent Ms Tillman from going to work for a competitor and being in a position to take advantage of knowledge she had built up in her old employment which could have damaged the ex-employer’s business.

Ms Tillman went to work for a competitor 3 months following the termination of her employment and her employer issued proceedings for an injunction to prevent her from doing so.Ms Tillman asserted that the restrictive covenant was an unreasonable restraint of trade clause since it prevented her from becoming a shareholder in the company she now worked for. It is interesting to note that Ms Tillman, on the facts, had no intention whatsoever of becoming a shareholder but appears to have used the argument as a vehicle to rid herself of the restrictive covenant so she could work for a competitor.

On Appeal, the Court concluded that the clause did prohibit shareholdings and was therefore impermissibly wide and in restraint of trade unless it could be severed in some way (clearly, preventing Ms Tillman from having a shareholding in her new employer went beyond being reasonable and protecting her employer’s legitimate proprietary interest. It was in all likeliness not what the employer had actually intended).

Courts are willing to sever clauses where needs be, but in this case, the Court upheld the Doctrine of Severance, namely it would not sever parts of the covenant, to make it enforceable. It is no business of the court to create a valid covenant in order to replace an impermissibly wide covenant which the employer seeks to impose on an employee.
Care should therefore be taken when drafting restrictive covenants to ensure they cannot be interpreted too widely, they are reasonable and they do not go beyond their purpose.

Professional legal advice should be sought to ensure that your restrictive covenants protect your business and are not too wide.

Get in touch

If you need any further advice, please do get in contact. Call Philomena Price, ​Director and Employment Law Solicitor at Spratt Endicott Solicitors on 01295 204147, or email pprice@se-law.co.uk.

*Disclaimer: While everything has been done to ensure the accuracy of the contents of this article, it is a general guide only. It is not comprehensive and does not constitute legal advice. Specific legal advice should be sought in relation to the particular facts of a given situation.

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