In the case of Tillman v Egon Zehnder Ltd  UKSC 32, the Supreme Court has upheld a 6-month non-compete covenant, adopting the more liberal approach to the rules of severance.
The Court ruled that on its proper construction, the covenant was unreasonably wide in that it restrained the employee from holding a minority shareholding in a competing business but held that the offending part of the covenant could be severed so as to make it enforceable.
In the UK restrictive covenants are prima facie void as being in restraint of trade unless they go no further than reasonably necessary to protect the legitimate business interests of the employer. In some cases, it may be possible for courts to sever unlawful words or provisions from the rest of a restrictive covenant in order to create an enforceable restriction.
Ms Tillman was employed by Egon Zehnder (EZ) to work in its financial services group from January 2004 until January 2017 when her employment came to an end. Ms Tillman then informed EZ that she wished to start working for a firm based in New York carrying out similar business on 1 May 2017. EZ issued proceedings against her alleging that this would breach the terms of the 6-month non-compete covenant in her contract which stated that Ms Tillman would not without prior consent:
“directly or indirectly, either alone or jointly with or on behalf of any third party and whether as principal, manager, employee, contractor, consultant, agent or otherwise howsoever at any time within the period of six months from the Termination Date: […] directly or indirectly engage or be concerned or interested in any business carried on in competition with any of the businesses of the Company or any Group Company which were carried on at the Termination Date or during the period of twelve months prior to that date and with which [she was] materially concerned during such period”.
Ms Tillman argued that the post-termination non-compete clause was void for being unreasonably wide. In particular she argued that on its proper construction, the restriction against being “interested in” a competing business was too wide as it could prevent her from having a minor shareholding in a competitor for investment purposes.
Decisions of the High Court and the Court of Appeal
The High Court upheld the non-compete covenant and granted an injunction, holding that on its proper construction, the covenant did not prevent Ms Tillman from holding a minority shareholding in a competing company. On appeal to the Court of Appeal, the Court overturned this decision and found that it was not possible to say that a shareholder in a company was not “interested in” that company in accordance with conventional usage, and with how that phrase has been interpreted in the authorities. Therefore, on its face, the non-compete clause was too wide.
Then, on whether the offending words of the covenant could be severed so as to make the remainder enforceable, the Court stated that the non-compete covenant was a single covenant preventing Ms Tillman from engaging or being concerned in a competing business in any one of several capacities, and that in accordance with case law its constituent parts could not be severed. EZ appealed to the Supreme Court.
Decision of the Supreme Court
The Supreme Court agreed with the Court of Appeal that the natural construction of the words “interested in”, consistent with longstanding authority, is that they cover the holding of any shares in the specified businesses and as such the covenant was unreasonably wide and unenforceable.
However, as to whether the offending words could be severed, overruling the Court’s decision in Attwood v Lamont  KB 571, the Supreme Court agreed that they could. It stated that the three essential criteria of the approach to severance set out in Beckett Investment Management v Hall  EWCA Civ 613 were satisfied: (i) that removal of the offending words was possible without the need to add to or modify the remaining wording; (ii) that the remaining terms were supported by sufficient consideration (not a point of contention in these circumstances); and (iii) that removal of the offending words would not generate any major change in the overall effect of all the post-employment restraints in the contract.
Implications for employers
The decision means that unlawfully wide parts of a covenant will be capable of being severed to save the enforceable remainder if the essential three elements of the doctrine of severance outlined above are satisfied.
Whilst this liberal approach to severability will be welcomed by employers, they should not treat it as permission to impose unnecessarily wide restrictions on employees. It is still the case that enforcing covenants is difficult, and the courts will not rewrite an unenforceable covenant in order to save it.
The cautious approach to drafting remains that covenants should expressly exclude a restriction on minority shareholdings in competing businesses. Equally, the practice of creating distinct and separate covenants is still to be recommended.