Does erasing words from restrictive covenants make them enforceable?
Restrictive covenants protect an employer’s legitimate business interest by restricting what the employee can do both during and after their employment. The clause must be reasonable and go no further than is necessary to protect the business interest. ‘Non-compete’ restrictions, which prevent an employee competing with the business for a period after termination of employment, are the strongest form of restraint. The recent case of Tillman v Egon Zehnder considered whether words can be deleted from a restrictive covenant, which is otherwise too wide, to make it enforceable.
The employee’s contract contained a term which prevented her from being engaged, concerned or ‘interested in’ a competing business for 6 months after termination. She wanted to work for a competitor and challenged the clause. She said the term ‘interested in’ was too wide and that the clause was therefore unenforceable. It stopped her from holding an investment of even one share in a competing company. The company asked for an injunction to stop her working for the competitor. The High Court granted the injunction, saying the clause was valid and did not stop her having a minor shareholding. The Court of Appeal disagreed. The words ‘interested in’ did prevent any shareholding. The clause was therefore unenforceable. The Court refused to erase the words ‘interested in’ to make it enforceable.
The Supreme Court agreed the clause was too wide but said the offending words could be erased, provided that the clause still made sense and the deletion did not change its overall effect. The words ‘interested in’ could be removed and the remaining clause was enforceable.
This is a helpful decision for employers. Nevertheless, businesses should continue to guard against drafting restrictive covenants too widely. The Supreme Court indicated that employees should not have to bear the cost of paring down an employer’s unreasonably wide restraint of trade clauses. It’s much better to have tightly drafted clauses which everyone understands and which genuinely protect the business.
For advice on restrictive covenants and how to enforce them, contact Andrew West on 01473 298102 or email [email protected].
