Restrictive covenants and non-compete clauses in employment contracts

The law concerning post termination restrictive covenants (which include non-compete, non-solicitation and non-dealing provisions) is complex. However there are some obvious important points regarding an employer’s approach to such restrictions that are highlighted by a recent case and which employers would be wise to familiarise themselves with. As Holmes & Hills Solicitors’ employment lawyer, I have discussed these points in this brief article.

In the case of (Egon Zehnder Limited v Mary Caroline Tillman) the High Court was invited to uphold a non-compete clause effectively preventing a departing employee from working for a competitor company for a period of six months following termination.

What are Restrictive Covenants?

These are clauses within an employment contract which seek to prevent (or limit) an employee’s ability to compete or contact clients / customers of the employer after that employee has left. Generally the approach of the Court will be to view such clauses as being in restraint of trade unless it can be persuaded by the employer that the restrictions are designed to protect “legitimate business interests” and are “no more than is reasonable having regard to the interests of the parties and the public interest”.

The reasonableness or otherwise of restrictive covenants is therefore likely to be highly dependent upon the care and attention applied to the drafting of the clauses and how frequently they are reviewed and updated.

Mrs Tillman had joined the employer company in 2004 starting in a relatively junior role. She was rapidly promoted and by the time of her departure, some 13 years later, had a significant level of client engagement. One of the issues the Court considered was at what date should the reasonableness of the non-compete clause be judged: the date of the contract or the date at which the employer seeks to enforce it?

The Court confirmed the correct approach was to determine the reasonableness of the clause at the date of the contract and regard should be had to what was contemplated by the parties at the time.

On the specific facts of the “Tillman” case, the employer was able to demonstrate that it had been contemplated from the outset that the employee was seen as having future potential and would likely be promoted to a senior role. Consequently the Court granted the employer an injunction preventing Mrs Tillman from joining a competitor business for a period of 6 months despite the age of the covenants.

Comment from an employment lawyer:

On this occasion Egon Zehnder Limited were fortunate in being able to persuade the Court that it should uphold 13 year old restrictive covenants. Employers should therefore:

1. Take particular care when recruiting new staff and drafting restrictive covenants to ensure they are properly tailored to the particular employee and what may be expected of them in the future;
   
2. Keep these covenants under regular review throughout an employee’s career and update them at key stages (promotion, extension of responsibility, etc.) to increase the likelihood that they will remain enforceable.

Contact David Dixey on 01376 320456 or dd@holmes-hills.co.uk for employment law advice.