On 3 July the Supreme Court handed down the long
awaited judgment in Egon Zehnder v Tillman [2019] UKSC
32. Tillman is the first employee competition case to be
considered at the highest level in more than a century. The Supreme
Court judgment, which reformulates the test for severance, is likely to be
of considerable practical importance for employers, employees and commercial
parties litigating restrictive covenants.
Amy Rogers acted for Ms Tillman in the Supreme Court
led by Daniel Oudkerk KC and instructed by Julian Taylor of Simmons &
Simmons.
The judgment is available here.
The non-compete
clause in issue in Tillman provided that, following the
termination of her employment, the employee must not “engage or be
concerned or interested” in a competing business. The clause was enforced
at first instance. That decision was overturned by the Court of Appeal holding
that the clause prevented Ms Tillman holding shares in a competing business,
that it was (for that reason) unreasonably wide, and that it could not be
severed.
The Supreme Court judgment addresses three issues:
(1) first, the employer argued that the restraint of trade doctrine did not
apply at all to a prohibition on ownership interests such as
shareholdings. This was rejected by the Supreme Court, holding that a
clause of this type is classically caught by the doctrine of restraint of trade.
There was no basis for the company’s proposition that a particular word in a
covenant otherwise subject to the doctrine could nevertheless fall outside it.
(2) secondly, the employer argued that the
‘validity principle’ meant that the clause should be construed so that it was
valid, and that construed on that basis the phrase “interested
in” did not extend to ownership interests such as
a shareholding. This second ground of appeal also failed. The Court held that the natural
construction of the phrase “to be interested in”, consistent with long-standing
authority, includes to hold shares. The company failed to establish even a
realistic alternative construction of it so as to engage the ‘validity’
principle.
(3) thirdly, the employer argued that the phrase
“interested in” could be severed. This third ground of appeal succeeded. The Supreme Court
formulated a new touchstone for severance, including “whether removal
of the provision would not generate any major change in the overall effect of
all the post- employment restraints in the contract”. It held that on
that test the phrase “interested in” was severable.
Finally the
Supreme Court noted that the severance of “unreasonable parts of
post-employment restrictions” was akin to the clearing up of “legal
litter” which cast an unfair burden on others. Inviting further
submissions as to costs it expressed the view that “the company should win….
but there might be a sting in the tail”.
