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Restrictive Covenants: First Supreme Court case in 100 Years

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Can words be severed from a clause to rescue an otherwise invalid restraint of trade?

Yes, held the Supreme Court in Tillman v Egon Zehnder Limited.

On leaving her employment with the respondent executive search firm, Ms Tillman sought to extricate herself from six-month non-compete restrictions by arguing that a clause restricting her from (among other things) being interested in a competitor business had the effect of restraining her from even holding any shareholding in a competitor and was thus an unreasonable restraint of trade.

Whilst the Supreme Court agreed with that construction of the clause, it held that the words ‘or interested’ could be removed from the offending clause in order to remove the unreasonable effect and to render enforceable the remainder of the covenant. In doing so, the Supreme Court reversed Court of Appeal authority applicable for 99 years.

The Supreme Court considered the following two factors to always be critical to questions of severance:

(i) Application of the blue pencil test – namely that there can only be removal of words if upon removal there would then be no need to add to or to modify what remains; and

(ii) Removal should not generate any major change in the overall effect of all the post-employment restraints in the contract.
Thanks to Jason Braier of 42 Bedford Row for preparing this case summary.