The courts have blown hot and cold about how far it is possible to sever a covenant that goes beyond what is reasonably necessary in order to make it enforceable. In Tillman v Egon Zehnder Ltd the Supreme Court confirmed that severance is possible if three conditions are met.

Ms Tillman was employed as a senior recruitment consultant. She had agreed not to "directly or indirectly engage or be concerned or interested in any business carried on in competition with" her employer for six months after the termination of her employment. After she resigned, she wanted to go and work for a competitor before the end of the six month period.

When Egon Zehnder applied for an injunction to prevent this, she argued that the covenant was unenforceable because the reference to being "interested" in any business would stop her from holding a minority shareholding in a competing business. This went beyond what was necessary to protect the employer's legitimate business interests. The High Court rejected that argument and granted an injunction, but it was overturned by the Court of Appeal. The employer appealed.

The Supreme Court agreed with the Court of Appeal that the words "interested in" prevented Ms Tillman from having a minority shareholding in a competing business. In principle, that meant that the restrictive covenant was in restraint of trade and void, unless the offending words could be severed. The key issue for the Supreme Court was whether severance was possible.

It reviewed two existing lines of authority, one to the effect that severance should not generally be allowed, the other more permissive. The Supreme Court preferred the more permissive approach, finding that severance is possible if:

  • There is no need to add to or modify the rest of the clause;  
  • There continues to be adequate consideration (which will not normally be problematic); and  
  • It does not generate any major change in the overall effect of the post-employment restraints in the contract.

Applying those tests, the words "or interested" could be severed from Ms Tillman's covenant, leaving it enforceable. However, the decision is not a silver bullet rendering impermissibly wide covenants enforceable. The Supreme Court observed that it was still necessary to approach severance with caution for policy reasons, and that there may be costs consequences for employers who rely on the courts to tidy up the "legal litter" of unreasonable covenants.

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