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- Developments

Significant ruling from UK Supreme Court on use of severance in Restrictive Covenants

Tillman v Egon Zehnder Ltd [2019] UKSC 32

Facts:

The Supreme Court in the UK recently handed down a landmark judgement in which a 6 month non-compete clause, while deemed overly restrictive, could still be enforced with the severance of the offensive terms.

Mrs. Tillman, in working for a competitor, breached her non-compete clause which sought to prevent her from being ‘directly or indirectly engaged or … concerned or interested in’ a competing business for six months following her termination of her employment. Mrs. Tillman claimed that the covenant went further than what was reasonably necessary to protect the business interests of the company. She argued that it prevented her from being ‘interested in’ a competing business or even becoming a minority shareholder in a competing firm. The fact that Mrs. Tillman was not proposing to become a shareholder, but was proposing to work in the competing firm was not of relevance.

The Supreme Court ultimately held that the offensive words, “interested in” could be severed from the clause in order to make it enforceable. The Court set out a new three-limb test for severance:

 

Why is this significant:

The discretion of the Courts in the UK in relation to restrictive covenants has been extended. Previously the court could reject clauses on the grounds of unreasonableness, however such clauses can now be amended with the severance of problematic words and are therefore still enforceable. The court is careful to warn employers from interpreting this judgment as providing a safety net to inattentive employers who poorly produce restrictive covenants. Severance will only be used in certain limited circumstances. The Irish courts took the same view of restrictive covenants as the UK courts and it will be interesting to see if the Irish courts follow the UK Supreme Court decision in relation to severance of offending words. The case also puts employers on notice to limit its non-compete clauses going forward to not inadvertently restrict employees from being shareholders in competing business after the employment has terminated.

31st July 2019

Anne O’Connell
Solicitors
Fitzwilliam Hall
Fitzwilliam Place
Dublin 2
www.aocsolicitors.ie

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