Broad Wording in Restrictive Covenants Can Make them Unenforceable
Many employers put restrictive covenant clauses in their employment contracts or directors service agreements. They’re used to stop any employee who left their business competing with them for a certain period of time.
Restrictive covenants often also include a clause to stop employees from contacting or soliciting any customers using the knowledge they gained when they were working for the business, which is known as an anti-competition (non-compete) clause.
The UK Supreme Court recently ruled on a case that covered a restrictive covenant clause. The Court ruled this specific clause as unenforceable because the wording was so broad it actually amounted to a restriction of trade.
If, as an employer, you are using restrictive covenant clauses in your contracts of employment or director service agreements, you will want to make sure that the wording is specific enough to be enforceable, in case you ever need to use it.
Our Employment Solicitors can check your contracts of employment or service agreements for you. Get in touch for initial advice.
The case in question at the Supreme Court was Tillman v Egon Zehnder Ltd.
Ms Tillman resigned from Egon Zehnder in January 2017. She told her employer that she intended to work for a direct competitor. Egon Zehnder applied for and obtained an Injunction to prevent Ms Tillman working for the competitor. This was because of the anti-compete clause in her contract of employment which said she could not work for a competing company for six months after her employment.
Ms Tillman appealed and the Court of Appeal allowed her appeal. This was because of the specific wording of her anti-competition clause. The clause read that she should not "directly or indirectly engage or be concerned or interested" in any competing business. The words “interested in” included Ms Tillman holding shares in a competing company and made the restriction too wide, and therefore void.
The Court of Appeal ruled that the remainder of the clause would not survive the removal of the words “interested in” and held the entire anti-compete clause was void. The Court of Appeal overturned the Injunction.
Egon Zehnder Ltd appealed and the case went to the Supreme Court.
The Supreme Court Decision
The Supreme Court found that the Court of Appeal were partially correct in their decision. The Court found that the offending words amounted to a restriction of trade, however the Court ruled the remainder of the anti-compete clause was still valid, as the deletion of the offending words would not create any major change to the overall effect of the anti-competition clause.
The Supreme Court ordered the High Court Injunction be restored subject to the removal of the offending words, despite the fact that the six month time period stated in her contract of employment had already expired.
Ensuring Restrictive Clauses are Valid
This is not always straightforward to do this but the general rule must be that the wording of any restriction is not too broad.
As an employer, you need to be perfectly clear which activities you want to restrict rather than trying to restrict everything. If you do try to catch everything in your restrictive covenants, senior members of staff who leave your business may be in a position to compete with you because the clause is void.
To be legally enforceable, you’ll need to show that the restrictions are necessary to protect a legitimate business interest and that the restrictions are reasonable and no wider than strictly necessary to protect that interest.
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