Sharpening The Blue Pencil: The UK Supreme Court Clarifies The Law Of Restrictive Covenants

Restrictive covenants are a common, even standard, feature of employment contracts for senior members of staff, but the manner in which they are treated by the courts is perhaps less commonly understood. The recent UK Supreme Court case of Tillman v Egon Zehnder Ltd1 is the first time that the issue has been considered at final appellate level, and has resulted in some important guidance in this regard. Although arising in the context of an English case, this is likely to be equally applicable in both the Cayman Islands and the offshore world more generally.

Factual Background

Mary-Caroline Tillman was a successful and senior manager, who had previously been employed by JP Morgan as European Managing Director. In early 2004 she took up employment as a consultant with Egon Zehnder Ltd, an executive recruitment firm, on a substantial annual salary, and was subsequently promoted to become joint global head of the company's financial services practice. Her contract of employment, as might be expected, contained a number of restrictive covenants, including a term that she would not for a period of twelve months "directly or indirectly engage or be concerned or interested in any business carried on in competition with any of the businesses of [Egon Zehnder]..."

On 30 January 2017 Ms Tillman ceased employment with the company and shortly afterwards announced that she intended to start work on 1 May 2017 with a competitor, claiming that her non-competition covenant was an unreasonable restraint of trade and therefore void. Egon Zehnder sought an injunction prohibiting her from doing so.

Her defence came down to the single argument that because the prohibition on being "interested" in any competing business meant that she could not even acquire a minority shareholding in such a business2, that exceeded the company's need to protect its legitimate interests, was unreasonable, and thus rendered the entire non-competition clause void. In contrast, the Company responded that the clause did not have that effect, and that even if it did, the words "or interested" could be removed from the clause, leaving the remainder intact and enforceable.

At first instance, the High Court (Mann J) found in favour of the company on the basis that the clause did not prohibit minority shareholdings. However, the Court of Appeal reversed that decision, rejecting that interpretation of the clause and going on to refuse to sever the offending words from the remainder of the...