The Supreme Court will today hear a dispute surrounding restrictive covenants in employment contracts, a case that could have profound implications for the people working in partnerships.
In Tillman v Egon Zehnder Ltd, the court will consider whether professional services firm Egon Zehnder (EZ) unreasonably restrained trade through a covenant that prevented former employee Mary Tillman from taking a job with a competitor for six months.
Ivor Adair, partner at employment firm Fox & Partners, said the ruling could have ‘huge implications for the City’. If the Supreme Court determines that the covenant, of a type commonly found in professional services and partnership agreements, is too wide, contracts that include such a provision will need to be rewritten.
Tillman worked at EZ for 13 years, eventually becoming co-global head of the financial services practices group. In January 2017, she handed in her notice and was placed on gardening leave. She wanted to join US consulting firm Russell Reynolds Associates (RRA).
However, her contract contained a non-competition clause preventing her from engaging or being 'concerned or interested in’ any business carried on in competition with EZ for six months.
Tillman challenged the contract at the High Court. She claimed that, even though she had no intention of doing so, the covenant was unreasonable since it also prevented her from becoming a shareholder in a competitor. She said this was emphasised in clause ‘13.2.3’ which stated that she should not: ‘directly or indirectly engage or be concerned or interested in’ any business in competition with any of the businesses of the company.
At the High Court Mr Justice Mann ruled that, on its true construction, the covenant did not prevent her from becoming a shareholder in a competitor.
Tillman took the case to the Court of Appeal which overturned the decision.
Writing the lead judgment, Lord Justice Longmore said the clause would still be open to interpretation even if the words ‘or interested’ were omitted. ‘The question would then be whether a shareholding was covered by the words “directly or indirectly engage or be concerned … in any business carried on in competition”,' he said. 'To my mind, being a shareholder in a company carrying on a business is being concerned in that business at any rate “indirectly”,’ Longmore said.
Adair said: ‘The case could also open up the possibility that if employers cannot get employees to sign revised contracts, then they may be forced to fire and rehire them on new terms.’ However, he warned that this could leave employers exposed to unfair dismissal claims.
Five justices, Lady Hale, Lord Kerr, Lord Wilson, Lord Briggs and Lady Arden, will preside over the two-day hearing.
EZ is represented by James Laddie QC of Matrix Chambers and Adam Solomon QC of Littleton Chambers. Essex Court Chambers’ Daniel Oudkerk QC and 11 KBW’s Amy Rogers are acting for Tillman.