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Was post-termination restriction a restraint of trade?

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The Supreme Court has overturned the decision of the Court of Appeal in the case of Tillman v Egon Zehnder Ltd , a case concerning the enforceability of a non-competition clause in an employee’s contract of employment.

Non-competition clauses are used by employers to protect unfair competition by the employee following the end of employment. The Court of Appeal had previously held that a clause restricting the employee from being ‘interested in’ a competing business was unreasonably wide and therefore a restraint of trade. It also held that the words could not be severed from the clause to enable the employer to rely on it.

Ms Tilman worked for Egon Zehnder as a headhunter. She resigned and told her employer that she intended to work for a competitor despite the non-competition clause in her contract. She believed the clause was void as the wording precluded her from holding a shareholding in another company by preventing her from being ‘interested in’ any competing business.

Egon Zehnder successfully obtained an injunction against Ms Tillman in the High Court. The High Court held that the wording did not prevent her from being a shareholder in a competing business. Egon Zehnder appealed. The Court of Appeal disagreed that the clause did not have this effect and went on to consider whether the words ‘interested in’ could be severed from the clause so as to limit its scope and render it enforceable. It held that it was unable to do so and the non-competition clause was therefore unenforceable in its entirety.

The Supreme Court agreed with the Court of Appeal that the words ‘interested in’ prevented her from holding shares in any competing business but it disagreed that the words could not be severed without there being a major change in the overall effect of all of the restraints in the contract. The clause was therefore found to be enforceable.

This judgment will be welcomed by employers as this wording appears in many senior employees’ contracts and is authority that the inclusion of this wording will not necessarily mean that an employer cannot enforce the post-termination restrictions. It is worth noting that post-termination restriction clauses should be regularly reviewed, particularly when an employee is promoted or takes on additional responsibility, to ensure that the business is protected.

If you would like to discuss any of the issues in this case, please do not hesitate to contact us

This article is not a definitive statement of the law. It is designed as a free update on the law at the time of publishing. It is not a substitute for legal advice on specific facts and circumstances. BakerLaw LLP and/or the writer accepts no liability or responsibility for reliance on this article and recommends that you seek independent legal advice on your specific circumstances prior to taking any steps.