Restrictive Covenants and Unlawful Restraint of Trade

Restrictive covenants in employment contracts are worthless if they are so broad as to amount to an unlawful restraint of trade. The Court of Appeal reiterated that point in enabling a senior recruitment consultant to take up a position with a competitor of her former employer (Tillman v Egon Zehnder Limited).

Mary Tillman began working for Egon Zehnder Limited as a consultant in January 2004. She gained promotion to principal in 2006 and to partner in 2009. In 2012, she was appointed as co-Global Head of the Financial Services Practice Group.

On 23 January 2017, she gave notice of her resignation to Egon Zehnder and her employment was terminated with immediate effect a week after she had been placed on garden leave. After learning of her intention to take up employment with a competitor, the agency launched proceedings.

Egon Zehnder pointed to a restrictive covenant in Ms Tillman's employment contract that forbade her from being directly or indirectly 'engaged, concerned or interested' in any competing business for six months after the termination of her employment. The High Court granted an injunction that held her to the terms of the covenant.

In upholding her appeal, however, the Court of Appeal found that, on a true reading of the covenant, it sought to prevent her becoming a shareholder in any competitor. The words 'or interested' were unambiguous and admitted of no other interpretation. The restriction was wider than was necessary for the protection of her employer's interests and the covenant was thus unenforceable.

The Court noted that the ban on contractual terms that seek to place unreasonable restraints on trade is based on the public policy of promoting competition and protecting employees from too readily abandoning the exercise of their right reasonably to compete following termination of their employment. The injunction was set aside, opening the way for Ms Tillman to commence working for the competitor.