The Court of Appeal in Tillman v Egon Zehnder Ltd overturned an earlier High Court decision and struck out a non-compete restriction in a senior employee’s contract of employment because it prevented her from having “any interest” in any competing business. This enabled her to commence work for a competing business immediately following the termination of her employment.
This case is likely to have important implications in future cases concerning the enforcement of post-termination restrictions, and should serve as a reminder for employers of the importance of the construction and drafting of such restrictions.
- Broad phrases attempting to restrict employees from being “concerned or interested in any business…” are currently often found in non-compete restrictions. As a result of this case, restrictions which include such wording will be unenforceable unless they are qualified by an exception allowing former employees to hold minor shareholdings in competing businesses for investment purposes.
- Employers should carefully review post-termination restrictions included within current employment contracts to determine whether amendments are required. Any non-compete restrictions should expressly allow the holding of minor shareholdings.
- Employers should continue to ensure that post-termination restrictions are tailored to a particular role/person, and that they are updated, as appropriate, throughout employment to reflect changing circumstances.
Ms Tillman was hired by Egon Zehnder, a global recruitment business, in January 2004 as a relatively junior consultant but on a higher-than-normal salary, with a view that she would quickly work her way up the ranks in the business.
Her employment contract included a non-compete restriction preventing her from being directly or indirectly engaged, concerned or interested in a competing business for a period of six months following the termination of her employment.
Despite being promoted a number of times, and eventually becoming Co-Global Head of the Financial Services Practice Group in 2012, Ms Tillman was not required to sign a new employment contract upon any of her promotions.
Ms Tillman left Egon Zehnder in January 2017 and informed the business that she wanted to start work for a competitor in May 2017, based in New York, prior to the expiry of the non-compete restriction.
Egon Zehnder sought to enforce the non-compete restriction in Ms Tillman's employment contract in the High Court. Ms Tillman argued that the restriction had been unenforceable at the time she commenced employment, as it went further than was reasonably necessary in light of her original duties as a consultant. She also challenged the restriction on the basis that it prevented her from having a minority shareholding in a competing business thereby making it too wide.
The High Court upheld the restriction, and granted the business an injunction restraining a breach by Ms Tillman. In doing so, it held that it was relevant, from the outset, that Ms Tillman was expected to be promoted quickly and it was legitimate to take into account the fact that an employee who had been identified for potential promotion may have had greater access to clients and confidential information than would otherwise have been expected. The Court’s view was that this made the non-compete restriction reasonable and enforceable. In relation to Ms Tillman’s challenge relating to the holding of minor shareholdings, the High Court held that the clause itself was ambiguous, and was persuaded that it was not intended to deal with shareholdings at all.
In the Court of Appeal, Ms Tillman again argued that the non-compete restriction was too wide to be enforceable as the term “interested in” would prevent her from holding any minor shareholding in a competitor business, even merely as a passive investment. The Court of Appeal agreed with her, finding that as the restriction effectively prohibited all shareholdings, no matter how minor, it went further than was necessary to protect Egon Zehnder’s legitimate business interests. As the restriction was theoretically too wide, it was unenforceable. This effectively gave Ms Tillman a ‘get out of jail free’ card: she did not have a shareholding in a competing business, nor did she intend to obtain one; her sole motivation in challenging the enforceability of the non-compete restriction in this way was to enable her to work for a competing business.