The future of non-compete clauses called into question by the Supreme Court
We eagerly await the judgment of the Supreme Court in the case Tillman v Egon Zehnder Ltd.
Mary Tillman was employed by the professional services company, Egon Zehnder Limited for 13 years until 30th January 2017.
Mary’s contract included a non –compete clause (restrictive covenant) (post termination restriction) preventing her from working or having an interest in a competitor (whether directly or indirectly) for 6 months after the termination of her employment.
Mary challenged the clause in the High Court claiming that it was unenforceable as the term “interested in” prevented her from being a shareholder in a competing firm and therefore the non-compete restriction should be unenforceable as it was too wide to protect a legitimate business interest.
The main question in the case concerned the wording that prevented her from being directly or indirectly interested in a competitor and whether this was unreasonable. Mary argued this was unreasonable as it prevented her from being a shareholder in a competitor. The High Court found it did not prevent her however, the decision was overturned by the Court of
Appeal that found that it did.
The case was heard at the Supreme Court on 21st and 22nd January 2019 and we await the judgment which is being deliberated over by five justices. The justices are considering the following:
1. Whether a restriction on post-employment shareholding is enforceable;
2. The meaning of “interested in” in non compete clauses; and
3. The correct way to sever a non compete covenant.
This judgment could have a significant impact upon companies seeking to enforce non-compete restrictive covenants. It may be that non-compete clauses in employment contracts across England and Wales need to be redrafted but the question is whether employees will agree to sign revised terms without substantial compensation. The only other alternative for companies will be to dismiss employees who will not sign revised terms for some other substantial reason and then re-hire them , a very risky alternative strategy.
We will watch out for this judgment.