Non-compete clause invalid


In Tillman -v- Egon Zehnder Ltd, the Court of Appeal held that a six month non-compete clause was invalid, because it prevented the individual from being “interested in” any business carried on in competition with the businesses of the company. This meant that the employee could not hold even one share in a competitor. During her employment, she was permitted to hold shares in any publicly quoted company (including competitors) provided that it did not exceed 5% of the company’s total equity. It was significant that there was no similar limitation concerning the post-termination restriction, and the Court concluded that the covenant went further than was necessary to protect the company’s interests. This meant that it was unenforceable in its entirety. The Court found that the words “or interested” could not simply by deleted (using the ‘blue pencil’ test) and thus the entire covenant was invalid. It has been reported that permission to appeal this decision to the Supreme Court is currently being sought.

Justin Costley


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