Tillman v Egon Zehnder Ltd

A restraint within a post-employment non-competition covenant remains subject to the restraint of trade doctrine even where it prohibits only the holding of shares. A construction preserving contractual validity may be preferred only if it is a realistic alternative.

An unreasonable part of a post-employment restraint may be severed where it can be deleted without adding to or modifying the remaining words, and where the employer proves that deletion causes no major change in the overall effect of the restraints. Severance does not require separate covenants or an excess of merely trivial or technical importance. Courts must nevertheless remain cautious because employers commonly draft the restraints and employees may lack equal bargaining power.

Tillman v Egon Zehnder Ltd concerned a six-month post-employment covenant preventing a senior executive from engaging, being concerned or being interested in a competing business. After her employment ended, Ms Tillman proposed to work for a competitor. She accepted that the covenant prohibited that employment but contended that the word “interested” also prohibited every shareholding in a competing business, making the covenant unreasonably wide.

Mann J granted the employer an interim injunction: [2017] EWHC 1278 (Ch), [2017] IRLR 828. The Court of Appeal allowed Ms Tillman’s appeal, holding that “interested” included even a minority shareholding and refusing severance: [2017] EWCA Civ 1054, [2018] ICR 574.

The Supreme Court considered whether the shareholding prohibition fell within the restraint of trade doctrine, whether “interested” covered shareholdings, and whether the offending words could be severed while leaving the remaining non-competition covenant enforceable.

1. Appeal allowed unanimously. Lord Wilson delivered the judgment, with which Lady Hale, Lord Kerr, Lord Briggs and Lady Arden agreed. The Court of Appeal’s order was set aside and the injunction granted by Mann J was formally restored, subject to severance of the words “or interested”.

2. The assumed prohibition against holding shares formed part of the employee’s restraint of trade. The employment contract and non-competition covenant were of a classic type falling within the doctrine. A shareholding, particularly a controlling or influential holding, could affect a competitor’s operations or accompany employment by it. A broad and practical approach therefore required the whole restraint, including its shareholding component, to satisfy the requirement of reasonableness.

3. The natural and long-established meaning of “interested” included a proprietary or pecuniary interest and therefore any shareholding, whether large or small. The agreement’s express treatment of shareholdings during employment and its omission of “shareholder” from another list did not establish a realistic alternative meaning. The validity principle applies only where the construction preserving validity is realistic. Equal plausibility is unnecessary, but mere ambiguity is insufficient. The shareholding prohibition was consequently unreasonable, as the employer conceded.

4. The severance rules attributed to Attwood v Lamont [1920] 3 KB 571 were unsatisfactory, and that decision was overruled. An employer seeking severance must establish that: (a) the offending words can be removed without adding to or modifying the remainder; and (b) removal causes no major change in the overall legal effect of all the post-employment restraints. In the usual employer’s claim, the separate criterion concerning adequate consideration can be ignored. Courts must nevertheless remain cautious because employees often have little opportunity to negotiate restraints and may be disadvantaged by litigation. The blue-pencil requirement supplies an appropriate limit: judicial rewriting would require legislation, such as the power conferred in New Zealand by the Contract and Commercial Law Act 2017.

5. Deleting “or interested” required no textual addition or modification and caused no major change in the restraints’ overall effect. The remaining word “concerned” denoted working for, or active involvement in, a business rather than passive share ownership. Severance did not alter the construction of the surviving language, which remained construed as if the deleted words were still present. The parties were invited to make submissions about costs.

1. United Kingdom Supreme Court: The employer’s appeal was allowed unanimously. The order of the Court of Appeal was set aside and the injunction was restored subject to removal of the words “or interested”: [2019] UKSC 32.

2. Court of Appeal: Ms Tillman’s appeal was allowed. The court set aside the injunction and dismissed the employer’s claim because “interested” included minority shareholdings and the offending words could not be severed: [2017] EWCA Civ 1054, [2018] ICR 574.

3. High Court: Mann J construed “interested” as excluding shareholdings and granted the employer an interim injunction: [2017] EWHC 1278 (Ch), [2017] IRLR 828.