UK Employment Flash

In this issue of UK Employment Flash, we examine the latest employment law developments, news and insights from the UK, including the Court of Appeal's ruling regarding pay for fathers or other caregivers taking shared parental leave, new government fines that have been imposed for data breaches and a European Court of Justice requirement that employers set up a system to record employees' actual working time.

Clarifying the 'Blue Pencil' Test for Noncompete Clauses

In an employer-friendly decision, the Supreme Court of the United Kingdom has clarified the use of the “blue pencil” test to sever an unenforceable element from a post-termination noncompete clause.

As a matter of public policy, the English courts enforce a post-termination restrictive covenant against an employee only if it goes no further (assessed at the time that the covenant is entered into) in terms of scope, duration and connection to the employee than is absolutely necessary to protect the employer's legitimate business interests — namely, confidential information, goodwill, customer connection and the stability of the workforce. The Supreme Court's July 2019 decision in Tillman v Egon Zehnder [2019] UKSC 32 was the first time in a hundred years that the highest court in the UK had considered the law of post-employment restraints and when they may amount to an unreasonable restraint of trade. The English courts will not rewrite an unenforceable restriction.

Background

Ms Tillman was a recruitment consultant at Egon Zehnder, a headhunting firm. Her contract of employment including a noncompete clause that provided that she should not for six months after the termination of her employment “directly or indirectly engage or be concerned or interested in any business carried on in competition with any of the businesses of the Company or any Group Company which are carried out at the Termination Date or during the period of 12 months prior to that date and with which you were materially concerned during such period.”

Ms Tillman left Egon Zehnder to join a competitor in breach of this restriction, and Egon Zehnder sought an injunction to prevent her from working for the competitor until the covenant expired.

At the original hearing, the High Court accepted Ms Tillman's argument that the requirement in the noncompete that she not have “any interest in” a competitor made the noncompete too wide to be enforceable because it would prevent her from owning any shares or interest in a competitor, even as a passive investor, and that was an unreasonable restraint of trade. Ms Tillman appealed to the Court of Appeal which refused to sever the offending words.

Supreme Court Decision

Ms Tillman then appealed to the Supreme Court, which clarified that the “blue pencil test” can be used to sever offending parts of a restriction as long as the rest of the restriction is enforceable.

Key elements of the decision included:

The Supreme Court interpretedinterested in to cover any shareholding, regardless of size. It was an unlawful restraint of trade to prevent Ms Tillman having a passive minor shareholding in a competitor. Accordingly, to enforce such a provision, the employment agreement must include a carve-out for minority shareholdings. The court can strike out the offending part of the covenant and enforce the rest, provided the employer can show that: The offending words can be deleted without the need to add or modify the wording that remains; and The removal of the unenforceable words does not generate any major change in the overall effect of the remaining post-termination restrictions in the contract (for example, any nonsolicit provisions). This is a positive decision for employers, with one word of caution: Employers may be required to bear the costs of enforcing a restriction to the extent it is necessary to ask the court toclear up any unenforceable provisions by severing them from the covenant. The Supreme Court...