Good news for employers seeking to enforce restrictive covenants
Five years ago I wrote an article for this blog which was entitled “Don’t rely on a court to fix a ‘defective’ restrictive covenant“. In doing so I was merely using a recent case to demonstrate the approach taken by courts to restrictive covenants in employment contracts, viz. that they have to be precise and correct in all respects, failing which they are likely to be struck out in their entirety. That’s why you often see a sub-clause at the end of series of restrictive covenants which states something along the lines that if any covenant or part thereof should be found to be unenforceable, that shall not invalidate the remainder: an attempt to pre-empt the likely outcome if the clauses are subjected to court scrutiny.
Restrictive covenants in employment contracts, and particularly those which seek to restrict a former employee from joining a competitor, can be difficult to enforce in practice. That’s because they are a form of restraint of trade which, on the face of it, is contrary to public policy. However, courts have acknowledged over the years that employers have legitimate business interests which they ought to be able to protect, but only to the extent that it is reasonable to do so. Consequently, such restrictions should be reasonable in area and duration, with the restrictions providing no more protection than is reasonably necessary. the received wisdom has been that if they go too far, they are likely to be struck out altogether. Since court proceedings in this field can be cumbersome, time-consuming and very expensive, often with no guarantee of a successful outcome and with an opponent who might not be in a position to pay costs if ordered to do so, employers have tended to be understandably wary about litigating and have instead relied on the deterrent factor of including such clauses in contracts.
There has been a good deal of litigation concerning restrictive covenants, very often considering what restrictions are reasonable in terms of their scope and application. However, it has been over 100 years since restrictive covenants have been considered by our most senior court. That is until the judgment of the Supreme Court in the case of Tillman v Egon Zehnder Limited, which was handed down on 3 July.