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Enforceability of restrictive covenants

Hewitts > All News > Enforceability of restrictive covenants

When considering the enforceability of restrictive covenants in employment contracts (also known as post-termination restrictions) they will be deemed void unless they go no further than is necessary in order to protect the employer’s legitimate business interests.  What is considered reasonable will vary on a case by case basis but will include consideration of a number of factors including the period of time the covenant is to remain active, the specific limitations it places on the employee and any geographical limitations imposed.

The burden of proving that any post-termination restrictions are reasonable rests with the employer.  In other words, in the event of any dispute regarding the post- termination restriction it is for the employer to prove that the clause it seeks to rely upon is reasonable rather than the employee having to prove that it is not.

Typically, the best practice would be to ensure that each post-termination restriction included within a contract of employment is tailored to the individual to whom that contract relates. Relying upon vague or widely drafted restrictive covenants has often in the past led to findings that those covenants have gone beyond what was reasonably necessary to protect the employer’s business interests and as such they have been found on many occasions to be unenforceable.

However, the Supreme Court recently took a different approach in the case of Tillman v Egon Zehnder Limited which was decided earlier this month.  In that case the employee left her employer in order to join a competitor in breach of a restrictive covenant in her employment contract which stated that she would not “directly or indirectly engage or be concerned or interested in any business  carried on in competition with any of the businesses of [the employer]…”

The employee Miss Tillman accepted an offer of employment which on the face of it was in breach of the restrictive covenant and accordingly her employer filed an application with the Court seeking an injunction to prevent Miss Tillman from accepting the alternative offer of employment in breach of the restrictive covenant.  At first instance the employer was granted the injunction; however Miss Tillman successfully appealed before the Court of Appeal who found that the restrictive covenant was too widely drafted for it to be enforceable.

In turn the employer appealed the Court of Appeal decision to the Supreme Court and was successful in obtaining the injunction.  The Supreme Court determined that whilst the post-termination restriction was wider than was required to protect the employer’s interests, it also held that removing the words “or interested” rendered the clause reasonable and therefore enforceable.  As such the Court treated the post-termination restriction as enforceable by removing the unenforceable part of the provision.  Accordingly the employer’s injunction was granted.

Whilst this decision is one that will be viewed as favourable from an employer’s perspective, employers should continue to approach post-employment restrictions cautiously and if possible in a way which tailors such provisions to each individual employee.

At Hewitts our commercial law teams can assist with drafting such clauses, and our litigation team can assist in the event of any dispute arising in relation to post-employment termination provisions.  For more information please contact a member of our team at any of our four offices.

 

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