The importance of well-drafted covenants
Tillman v Egon Zehnder Ltd: Court of Appeals considerations of the enforceability of a non-compete covenant
Ms Tillman had been employed by Egon Zehnder Ltd (EZ) for 13 years. When she was first hired as a consultant, it was expected that she would be promoted quickly and she was given increased terms and access to customers that other employees of similar seniority did not receive. She rose swiftly through the ranks and became Co-Global Head of the Financial Services Group in 2012.
When she resigned, Ms Tillman notified EZ that she wanted to start working for one of its competitors. In reliance on her non-compete covenant restricting her from being "engaged, concerned with or interested in" a competing business for 6 months, EZ sought an injunction to prevent her from doing so.
Ms Tillman argued that the covenant was unreasonable given that it was from her original contract at a much more junior level. However, the High Court held that because she was hired with the expectation that she would rise swiftly through the ranks, she had been afforded benefits, information and access to customers that an ordinary employee of that level would not have had. Therefore EZ could enforce the covenant.
Ms Tillman appealed, on the grounds that the wording of the covenant was unreasonable.
The Court of Appeal allowed the appeal and set aside the injunction, allowing Ms Tillman to join her new employer. The main reason for this was that it prevented her from being “interested in” a competing business, which essentially restricted her from becoming a shareholder in a competitor and amounted to an unreasonable restraint of trade.
The Court of Appeal also considered whether the words “interested in” could be removed, leaving the remainder of the convent valid, however it found that it could not be severed because:
- The covenant would still be too wide as it would still prevent her from being “concerned” in any competing business, which could also cover being a shareholder; and
- Severance can only take place where there are distinct covenants. In this case, the non-compete restriction was contained in one single covenant.
This case highlights the importance for employers of having carefully considered and well-drafted covenants.
As always, the best approach is to ensure appropriately tailored covenants and to revise and produce new covenants when issuing new contracts on promotion.