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  UKSC 32
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…”