Tillman v Egon Zehnder Ltd
The first Supreme Court case on employment restrictive covenants in more than 100 years
Tillman highlights how severance (deletion of certain words) can be applied to
restrictive covenants in employment contracts in order to allow for enforceability.
Ms Tilman left Egon Zehnder Ltd and agreed to comply with all the covenants contained in her employment contract, this included that she should not ‘directly or indirectly engage or be concerned or interested’ in any competing business. She alleged that the non-compete covenant was an unreasonable restraint of trade and therefore void under contract law principles because there was no legitimate business interest to protect.
Conversely, the employer argued that if the blue pencil doctrine was used, the offending words could merely be deleted, so that the restrictive covenant was reasonable and enforceable.
The Supreme Court held that the wording ‘or interested’ was capable of being removed from the covenant (via the blue pencil doctrine) without requiring the addition or modification of existing wording, thereby saving the restrictive covenant and the employer could therefore rely on it.
Employers should make sure that restrictive covenants are carefully drafted and tailored to individuals and that the covenants are kept under regular review, specifically when the individual’s status changes and they are promoted or where there has been a purchase of the business.