Case law: An unenforceable restriction in an ex-employee’s contract can be ‘severable’ so other restrictions still apply

Employers will welcome a ruling that a restriction in a clause in an ex-employee’s employment contract, stopping her from being ‘interested in’ any competitor business and which was too wide to be enforceable, could be ‘severed’ from the other restrictions in the clause, so those other restrictions remained enforceable against her.

An experienced employee who had held senior positions in the financial services industry was taken on in a junior role by an executive search consultancy. Unsurprisingly, she advanced rapidly to a very senior position. Her original contract of employment was not amended as she progressed in seniority. It contained a non-compete clause imposing a number of restrictions which would apply for six months after she left, including one which said she should not ‘directly or indirectly engage or be concerned or interested in any business carried on in competition’ for six months after she left.

Such restrictions in employment contracts, for example, preventing ex-employees from poaching clients or colleagues or taking, disclosing or using the employer’s confidential information (known as restrictive covenants) are only enforceable if they are no wider than reasonably necessary to protect a legitimate interest of the employer. Otherwise they are unenforceable on grounds they unreasonably stop the ex-employee from making a living (ie, ‘in unreasonable restraint of trade’). When deciding what is too wide, the court has to balance the interests of the employer against those of the ex-employee.

The employee in this case left her job and, shortly after, told her former employer that she planned to start working for a competitor. Her employer applied for an injunction to stop her on the basis it breached the restrictions in her contract.

She argued that the restriction on her being ‘interested in’ a rival business was too wide as those words prohibited her from holding any shareholding, however minor, in any competitor at all and did not protect any legitimate interest of the employer. It was therefore unenforceable – even though she held no such shareholding and had no desire to do so. She argued that the fact this particular restriction was unenforceable meant the whole clause was unenforceable - including all the other restrictions it imposed on her.

Her employer argued that the words did allow her to hold minor shareholdings in competitors - they should be interpreted as meaning merely that she should not be actively engaged with a competitor, which was a reasonable restriction.

The Supreme Court agreed that the restriction was too wide and therefore unenforceable.

However, it found that this did not mean that other restrictions in the clause were therefore unenforceable. Overruling the Court of Appeal decision on this point, it said that the offending words could be severed from the rest of the restrictions, leaving those other restrictions valid and enforceable. This is because severing them in that way did not fundamentally change the character of the employee’s contract and did not generate any major change in the overall effect of the restrictions on the ex-employee's conduct.

Operative date

• Now

Recommendation

• Employers should ensure they take advice on the reasonableness of any restrictions they want to impose on employees in their employment contracts, including advice on how to structure the restrictions so that, if any of them (or any part of one of them) is found to be unreasonably wide and therefore unenforceable, it can be severed, so that the remaining restrictions remain enforceable.

Case ref: Tillman v Egon Zehnder Limited [2019] UKSC 32

Please note: An article published in the September 2017 edition of Legal Alert covered this case at an earlier stage in the legal process.