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Last month, the Supreme court ruled on an important case involving post termination restrictions in employment contracts. Such covenants are only valid if they go no further than is reasonably necessary to protect the business interests of the employer. They can be vital for any business wanting to protect its client and customer contacts and its confidential information.
The Court will not re-write the wording of a covenant to render it enforceable but may remove the offending part of a covenant and leave the remaining parts standing. This is known as the “blue pencil” test..
In the recent case of Tillman v Egon Zehnder, Mrs Tillman worked Global Head of Financial Services. She had signed a contract upon joining in 2004 that contained a 6 month non-compete covenant. She resigned in January 2017 and told her employer that she intended to begin work for a competitor from May 1st 2017.
EZ applied for an injunction on the basis that she was in breach of her employment covenants which sought to prevent her from being “directly or indirectly engaged or concerned or interested in” a competing business until 30th June 2017.
The Supreme Court decided that the natural meaning of the word "interested" included a shareholding so that ordinarily the covenant would be void as an unreasonable restraint of trade;. However the words "or interested" were capable of being removed from the covenant without the need to add to or modify the wording of the rest of the covenant The Court held that removing these word would not have any major effect on the covenants. Consequently, a High Court injunction applicable to Mrs Tillman was restored.
Employers are likely to welcome the decision as it provides greater clarity on whether post termination restrictions are reasonable and the effect, if parts of those restrictions are found to be unreasonable.
As ever, employment contracts and restrictive covenants need careful bespoke drafting to ensure they protect business interests. If you are a business and have concerns about the effectiveness of your employment contracts and/or restrictive covenants, please contact Gareth Dando on 01484 558060 or by email firstname.lastname@example.org.