When part of a post-termination restriction is unenforceable, can that offending part be severed so as to leave the employee bound by the remainder of the covenant? The UK Supreme Court has said it can in the case of Tillman v Egon Zehnder Ltd.
Ms Tillman worked for Egon Zehnder Ltd (EZ), an executive recruitment and management consultancy. Her employment contract contained restraints upon her activities following the end of her employment. On 30 January 2017, Ms Tillman’s employment with EZ came to an end. At the time, she was EZ’s joint global head of its financial services practice area. She informed EZ that she intended to start work for a competing business on 1 May 2017. She challenged the validity of the non-compete covenant in her contract which stated that, for a period of six months after termination, Ms Tillman would not:
‘directly or indirectly engage or be concerned or interested in any business carried on in competition with any of the businesses of the Company or any Group Company…’
The Supreme Court unanimously decided that the words ‘interested in’ unlawfully prevented Ms Tillman from holding even a minority shareholding in a competing business which amounted to an unreasonable restraint of trade and was, therefore, unenforceable. However, crucially, it was decided that the offending words ‘interested in’ could be ‘severed’ and removed so as to render the remainder of the covenant enforceable.
Severance will be possible where the unenforceable provision is capable of being removed without having to modify the remaining words so that they still make sense (the ‘blue-pencil’ test). Further, the removal of the provision must not generate any major change in the overall effect of the post-employment restrictions in the contract.
Some newspapers have got very excited about this case saying it allows for all kinds of wide ranging covenants. This isn’t quite right, post-termination restrictions still must not exceed what is reasonably necessary to protect an employer’s legitimate interests. Employers however can now take comfort that if a part of their covenants is deemed unenforceable, they may be able to pick up their blue pencil and cut it out. |
