• Facebook
  • Twitter
  • LinkedIn
Call us now: 01243 836 840   [email protected]
Pure Employment Law
  • Who We Are
    • Nicola Brown
    • Peter Stevens
    • Elena Elsam
    • David Jones
    • Linda Nye
    • Brenda Cherry
  • For Employers
    • Advice on HR and People issues
    • Investigations, Hearings and Appeals
    • Restructuring and Redundancy
    • Defending Employment Tribunal Claims
    • Dismissal of Senior Executives
    • Contracts, Handbooks and Policies
    • Employment Law Training
  • For Employees
    • Settlement Agreements
    • Workplace Issues including Disciplinary and Grievance
    • Bringing an Employment Tribunal Claim
  • Employment Law Events
  • Legal Updates
  • Testimonials
  • Vacancies
  • Contact us
  • Search
  • Menu Menu

Restrictive covenants and the blue pencil test – landmark case

17 July 2019

picture of a blue pencil

The Supreme Court (previously the House of Lords) very rarely has the opportunity to consider cases of restrictive covenants in employment contracts. This is possibly somewhat surprising, given that these types of restrictions are common in employment contracts for senior people, and litigation about restrictive covenants is far from unusual. In the recent case of Tillman v Egon Zehnder Limited, the Supreme Court considered a restrictive covenant case for the first time in over 100 years!

Restrictive covenants (sometimes also known as post-termination restrictions) are clauses which are designed to protect the employer from a departing employee damaging the employer’s business when they leave. Covenants may, for example, restrict who the former employee may deal with or who the former employee can approach for business, prevent the former employee seeking to poach or employ key staff, or seek to prevent the former employee working for a competitor. Sometimes they apply only within a defined area, but always for a limited period.

Restrictive covenants will only be enforceable to the extent that they are necessary to protect an employer’s legitimate business interest, and are reasonable. It is that reasonableness provision which is the main cause of disputes.

In the Tillman case, the question was whether words in a restrictive covenant which would have made the covenant too wide and therefore unenforceable, were capable of being deleted, thus leaving the remaining enforceable covenants in place. This is known as the ‘blue pencil’ rule, a concept from case law which dates back to 1894!

Ms Tillman’s employment with Egon Zehnder terminated on 30 January 2017. Her contract of employment contained various restrictive covenants regarding non-solicitation and non-dealing with clients etc, which both parties acknowledged were reasonable and enforceable. However, the contract also contained a non-compete clause. This 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 the period of twelve months prior to that date and with which you were materially concerned during such period.”

Ms Tillman told Egon Zehnder that she going to work for a competitor, but that she was prepared to abide by the restrictive covenants in her contract, with the exception of this one which she contended was too wide to be enforceable. She argued that the words “interested in” were so wide that they prevented her holding even a tiny shareholding in a competitor.

Egon Zehnder Limited issued proceedings in the High Court to seek an interim injunction to prevent Ms Tillman breaching this non competition covenant. Egon Zehnder argued that the wording did not prevent Ms Tillman owning a small shareholding in a competitor and, perhaps surprisingly, the High Court agreed. Ms Tillman appealed to the Court of Appeal who held that the clause did prevent Ms Tillman holding even a small shareholding and was therefore unreasonable and unenforceable. They then went on to consider whether the words “or interested” could be deleted from the clause by using the ‘blue pencil’ rule and, following previous case law, the court held that they could only delete the words if the covenant was in effect a combination of different covenants. This was not the case here, so the Court of Appeal refused to delete the words, with the effect that the clause was unenforceable.

Egon Zehnder appealed to the Supreme Court. The Supreme Court agreed with the Court of Appeal that the words “interested in” did prevent Ms Tillman from holding a minor shareholding. However, they then went on to consider whether they were able to delete the words “interested in”. They reviewed the law in this area and concluded that there were three criteria which had to be satisfied before words could be severed from a covenant under the ‘blue pencil’ rule. These were:

1) Can the unenforceable wording be removed without adding to or modifying the remaining words?

2) Are the remaining covenants supported by adequate consideration (i.e. did the individual receive something in exchange for agreeing to them)? For more information about consideration, see our previous article here.

3) Does the removal of the unenforceable part have the effect that the remaining covenant would not generate any major change in the overall effect of the restrictive covenants in the contract of employment?

The Supreme Court applied these tests to the Tillman case and concluded that they could delete the words “interested in” and that by doing so they would not create any major change in the overall effect of the restrictions. They therefore reinstated the injunction granted by the High Court, although by this stage the 6 month period of the restrictions had long since passed!

The case is of interest because it gives certainty to the guidance for courts on how they can apply the ‘blue pencil’ rule, i.e. when they are able to delete words from restrictive covenants which would otherwise be too wide to be enforceable. The case also illustrates the need for careful drafting of restrictive covenants. Had the covenants in Ms Tillman’s contract included a clause saying that nothing in these clauses would prevent her holding say 5% shares in another business, then the whole dispute, and all the costs associated with it, would have been avoided.

If you need help drafting, interpreting or enforcing a restrictive covenant, please get in touch. You can call us on 01243 836840 for a no obligation chat, or email us at [email protected].

Please note that this update is not intended to be exhaustive or be a substitute for legal advice. The application of the law in this area will often depend upon the specific facts and you are advised to seek specific advice on any given scenario.
Share this article
  • Share on Facebook
  • Share on Twitter
  • Share on WhatsApp
  • Share on LinkedIn
  • Share on Reddit
  • Share by Mail

Join our mailing list

* = required field
Mailing Lists


Recent Legal Updates

  • FAQs about COT3s 18th December 2020
  • Can an employer withdraw a notice of redundancy? 18th December 2020
  • Will employers be able to insist that staff have the Covid-19 vaccination? 18th December 2020
  • Furlough over Christmas? 18th December 2020
  • Update – Furlough scheme extended 18th December 2020
Link to: Contact Us

Any questions? Why not get in touch!

Our advice is always given in plain English without any waffle, and we focus on providing practical solutions to our clients’ problems.

Contact us

LEGAL INFORMATION

Pure Employment Law | 1 Little London, Chichester, West Sussex, PO19 1PH
[email protected] | Tel: 01243 836840

Pure Employment Law is the trading name of Pure Employment Law Limited, registered in England and Wales with company number 07134294 and whose registered office is 1 Little London, Chichester, West Sussex, PO19 1PH. Pure Employment Law Limited is authorised and regulated by the Solicitors Regulation Authority with registration number 533794. A list of the company’s directors is available for inspection at the registered office

DISCLAIMER

The information contained in this website is for general information purposes only. The information is provided by Pure Employment Law and while we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

Privacy Policy | Cookies Policy | Terms & Conditions | How to make a complaint | Sitemap

© Pure Employment Law 2021

Scroll to top

This site uses cookies. By continuing to browse the site, you are agreeing to our use of cookies as defined in our cookie policy.

Accept Cookie Policy

Cookie and Privacy Settings



How we use cookies

We may request cookies to be set on your device. We use cookies to let us know when you visit our websites, how you interact with us, to enrich your user experience, and to customize your relationship with our website.

Click on the different category headings to find out more. You can also change some of your preferences. Note that blocking some types of cookies may impact your experience on our websites and the services we are able to offer.

Essential Website Cookies

These cookies are strictly necessary to provide you with services available through our website and to use some of its features.

Because these cookies are strictly necessary to deliver the website, refuseing them will have impact how our site functions. You always can block or delete cookies by changing your browser settings and force blocking all cookies on this website. But this will always prompt you to accept/refuse cookies when revisiting our site.

We fully respect if you want to refuse cookies but to avoid asking you again and again kindly allow us to store a cookie for that. You are free to opt out any time or opt in for other cookies to get a better experience. If you refuse cookies we will remove all set cookies in our domain.

We provide you with a list of stored cookies on your computer in our domain so you can check what we stored. Due to security reasons we are not able to show or modify cookies from other domains. You can check these in your browser security settings.

Google Analytics Cookies

These cookies collect information that is used either in aggregate form to help us understand how our website is being used or how effective our marketing campaigns are, or to help us customize our website and application for you in order to enhance your experience.

If you do not want that we track your visit to our site you can disable tracking in your browser here:

Other external services

We also use different external services like Google Webfonts, Google Maps, and external Video providers. Since these providers may collect personal data like your IP address we allow you to block them here. Please be aware that this might heavily reduce the functionality and appearance of our site. Changes will take effect once you reload the page.

Google Webfont Settings:

Google Map Settings:

Google reCaptcha Settings:

Vimeo and Youtube video embeds:

Other cookies

The following cookies are also needed - You can choose if you want to allow them:

Privacy Policy

You can read about our cookies and privacy settings in detail on our Privacy Policy Page.

Privacy Policy
Accept settingsHide notification only