Post-termination restrictions clarified after Supreme Court ruling

A recent case that reached the Supreme Court has clarified the position regarding post-termination restrictions of former employees. Overturning a previous ruling by the Court of Appeal, the Supreme Court found that restrictive covenants preventing an employee from being “concerned or interested” in a competitor for six months after they leave were not too wide to be enforceable.

The case concerned a former employee of recruitment firm Egon Zehnder, Mary-Caroline Tillman. Ms Tilman’s claim ultimately came down to the wording used within the clause of the covenant; that as a former employee, Ms Tilman would not “directly or indirectly engage or be concerned or interested in any business carried on in competition with any of the businesses of [Egon Zehnder]” for six months after leaving the business.

Although the Court of Appeal had previously found that the words “interested in” made the clause an unreasonable restraint of trade, the Supreme Court ruled that removing these two words from the clause did not result in any major change in the overall effect of the restriction, and it could therefore be upheld.

Whilst the case has gone some way to clarify the position on what may be deemed reasonable to include in a set of restrictive covenants, the to-ing and fro-ing to reach this decision and the fact that the company concerned had to go all the way to the Supreme Court goes to show how grey the law in this area can be.

Rather than seeing the decision as a green light to include similar restrictions in employment contracts, it should rather be seen as a wake-up call for employers and a prompt to revisit their restrictive covenants to make sure that what they have in place is enforceable.

Restrictive covenants are just one element of an employment contract that needs to be reviewed for suitability. It remains a surprise to us how often unsuitable contracts are in place across organisations, and we even still come across employers who fail to have employment contracts in place at all!

As well as ensuring new employees sign an employment contract that is suitable for their position within the company, ideally upon commencement of employment, employers also need to remember to follow this through the entirety of employment lifecycle. Where employees are promoted, it’s vital that their employment contracts are updated accordingly. This is often the part that gets forgotten, and can lead to senior employees being on contracts with only two weeks’ notice and with no restrictive covenants!

Working alongside an HR adviser, either on a project basis to review contracts of employment, or to play an ongoing HR role in your organisation, can help to ensure that all the i’s are dotted and the t’s crossed.

For more information about this ruling or for wider advice on employment contracts, contact KMC Human Resources to discuss your options.