in Careers Advice, Changing Jobs, Employers, Legal Profession

Restrictive Covenants – recent Supreme Court ruling

For years we have very patiently advised clients contacting us to request solicitors with a following, ie the ability to bring their own work and files to a new firm, that there is the small matter of a Restrictive Covenant ever present in most contracts of employment. As anyone knows, you cannot simply walk out of a law firm clutching all ‘your’ clients’ files, simply because they are not your clients! Quite often we have been told that, even if ignoring the lack of morality involved in such a manoeuvre, restrictive covenants are generally unenforceable and therefore lawyers need not worry about them.

Well,
for the first time in over 100 years there has been a decision handed
down by the Supreme Court this week that confirms the enforceability of
restrictive covenants even if some parts overstep the mark and the case
relates to a recruitment agency and consultant (naturally!). The case
had gone to the Supreme Court due to the Court of Appeal’s refusal to
sever part of a restrictive covenant thus rendering the whole thing void
due to unreasonable restraint of trade.

Tillman v Egon Zehnder Ltd [2019] UKSC 32
Summary

The Respondent left her employment with the Appellant, and agreed to comply with all covenants in her contract apart from a non-competition covenant which stated that she should not “directly or indirectly engage or be concerned or interested” in any competing business; she alleged that this covenant was in unreasonable restraint of trade and thus void. The High Court granted an interim injunction restraining the Respondent from working for a competing business, but the Court of Appeal considered that the words “or interested” would prohibit even a minor shareholding and refused to sever those words; accordingly, the covenant was held to be void as an unreasonable restraint of trade. The Appellant appealed, and raised the issues whether (1) the covenant fell entirely outside the restraint of trade doctrine, (2) the words “interested in” prohibited any shareholding, and (3) the correct approach to severance was applied.

The
Supreme Court held that (1) the restraint of trade doctrine did apply
on the facts, and (2) the natural meaning of “interested” included
shareholding so that, subject to severance, the covenant would be void
as an unreasonable restraint of trade; however, (3) on the facts the
words “or interested” were capable of being removed from the covenant
without the need to add to or modify the wording of the rest of the
covenant, and removal of the prohibition against the Respondent being
“interested” would not generate any major change in the overall effect
of the restraints.

Commenting on the decision, Andrew Taggart,of Herbert Smith Freehills told the Recruiter magazine: “The judgment is good news for employers seeking to enforce restrictive covenants, but not such good news for employers and recruiters who want to try and challenge those covenants…”

Jonathan Fagan

Jonathan Fagan LLM FIRP is Managing Director of Ten-Percent Legal Recruitment. He has been recruiting solicitors and legal support staff for law firms and in house legal departments for over 17 years and handles roles from junior fee earners through to partners and law firm sales/purchases. A non-practising solicitor on the Roll since 2000, he is also the author of a number of legal career books, which are available at www.legalcareercoaching.co.uk. You can contact Jonathan at cv@ten-percent.co.uk