MOrsel: It's time to revisit your non-compete covenants once again!

In the case of Mary Caroline Tillman v Egon Zehnder Ltd [2017] EWCA Civ 1054 the Court of Appeal held that a non-competition covenant that included a restriction which restrained a former employee from becoming a shareholder in a competitor for a period of six months was too wide and a restraint of trade and thus the whole clause fell away.

The non-competition clause in the appellant’s contract of employment stated: "You shall not without the prior written consent of the Company 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 such period".

The Court of Appeal determined that the clause prevented the appellant from having a shareholding in a competitor business. It was not possible to say that a person holding shares in a company was not "interested in" the business of the company. The clause was therefore too wide and a restraint of trade.

The Court of Appeal went on to determine that the clause could not be severed as even without the words "or interested" the restraint against being "concerned" in a business could still prevent an employee from becoming a shareholder in a competitor. Furthermore, this was a single covenant and severance could only take place where there were distinct covenants. The fact that the employee had not expressed an intention to buy any shares was neither here nor there.

Whilst this case is not binding in Guernsey or Jersey, it is likely that our Courts would consider it. The case again highlights how fast-moving the area of restrictive covenants is: what is acceptable one week is not always acceptable the following week! Generally speaking, non-compete covenants will always be difficult to enforce due to their restrictive nature and should only be used in circumstances where non-solicitation covenants are not sufficient to protect legitimate business interests. It is very important to review your covenants on a regular basis to ensure they are in line with the latest case law.