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Restrictive Covenants - Supreme Court Judgment

The Supreme Court decision in Tillman v Egon Zehnder Ltd reminds parties involved in the drafting of restrictive covenants in an employment situation (as opposed to a sale and purchase) of the need to ensure that the covenant is drafted to only prevent unfair competition, rather than competition, following termination of employment and should be drafted to address the particular facts of an employment relationship rather than in generalities.

In this case the inclusion of the words "interested in" a business in the non competition clause was deemed to be too wide a restriction as it included a minority shareholding in a competing business.

The covenant was in fact  saved by the application for the 'blue pencil' test, a long established principle in construing restraint clauses, but it would have been far preferable to not have to resort to this 'saviour' by drafting the covenant precisely in the first place.

If competition by ex-employees is a serious commercial risk to your business then it is essential to have restraint clauses carefully drafted to suit the specific circumstances of the employment.

If you would like to discuss the drafting of a restrictive covenant please contact Richard Green, Partner Employment on 01905 721600.

Supreme Court - Full Judgment

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