Tillman v Egon Zehnder Ltd

JurisdictionEngland & Wales
CourtSupreme Court
JudgeLord Wilson,Lady Hale,Lord Kerr,Lord Briggs,Lady Arden
Judgment Date03 Jul 2019
Neutral Citation[2019] UKSC 32

[2019] UKSC 32

Supreme Court

Trinity Term

On appeal from: [2017] EWCA Civ 1054

before

Lady Hale, President

Lord Kerr

Lord Wilson

Lord Briggs

Lady Arden

Tillman
(Respondent)
and
Egon Zehnder Ltd
(Appellant)

Appellant

James Laddie QC

Adam Solomon QC

(Instructed by Reynolds Porter Chamberlain LLP (London))

Respondent

Daniel Oudkerk QC

Amy Rogers

(Instructed by Simmons & Simmons LLP)

Heard on 21 and 22 January 2019

Lord Wilson

( with whom Lady Hale, Lord Kerr, Lord Briggs and Lady Arden agree)

Introduction
1

A company employs a business executive pursuant to a written agreement. Following the termination of her employment she wishes to become employed by a firm whose business is in competition with that of the company. The company contends that her proposed employment would breach a covenant in the agreement. She answers that the covenant is void at common law because part of it is in unreasonable restraint of trade. Before this court the company replies with three contentions, each of which she disputes.

2

Each of the company's contentions raises an issue with a different hypothesis, as follows:

(A) The hypothesis in Issue (A) is that the employee's construction of the part of the covenant alleged to be in unreasonable restraint of trade is correct. Here the company contends that the impugned part falls outside the doctrine against restraint of trade (“the doctrine”) and that it is therefore irrelevant that, had it fallen within the doctrine, it would have been in unreasonable restraint of it.

(B) The hypothesis in Issue (B) is that the employee's construction of the impugned part is incorrect. Here the company contends that, upon a correct construction of it, it is not in unreasonable restraint of trade.

(C) The hypothesis in Issue (C) is that, as in Issue (A), the employee's construction of the impugned part is correct; but that, contrary to the company's contention in Issue (A), it does fall within the doctrine. Here the company contends that, although it is in unreasonable restraint of trade, the impugned part should be severed and removed from the remainder of the covenant, which would therefore survive so as to prohibit the employee's entry into the proposed employment.

One can argue that Issue (B) is logically anterior to Issue (A). But, since Issue (A) purports to test the very boundaries of the doctrine, a balance of convenience favours consideration of it first.

3

I will explain why in my opinion the most difficult and important issue raised in the appeal is Issue (C): when part of a post-employment covenant is in unreasonable restraint of trade, in what circumstances should the court sever and remove it so as to leave the employee bound by the remainder of it?

The Facts
4

Egon Zehnder Ltd (“the company”), the appellant, is the UK subsidiary of a Swiss company and part of a worldwide group which is in the business of specialist executive search and recruitment. The group has nine practice areas into one of which it will place each of its recruiting customers.

5

Ms Tillman, the respondent, had previously been employed by J P Morgan as European Managing Director. The company considered that she would be ideally placed in the financial services practice area of its business. It employed her as a consultant, with effect from 5 January 2004, pursuant to the terms of an employment agreement dated 10 December 2003. It agreed to pay her a salary of £120,000 pa and, at the end of the first year, a bonus of £100,000 provided that she then remained in its employment. Mann J, at first instance, observed that the company regarded Ms Tillman as “a bit special” and that it expected to promote her. It duly promoted her to be a principal in 2006 and to be a partner in 2009. A condition of her becoming a partner was that she should hold shares in the Swiss holding company; and she began to do so. In 2012 she became joint global head of the company's financial services practice area. The agreement made in 2003 was never replaced in order to reflect her promotions although no doubt a few of its terms, in particular relating to her remuneration, then changed. In any event, however, resolution of the issues raised by the appeal requires the court to address the terms of the original agreement.

6

Clause 13 of the agreement was entitled “COVENANTS” and it provided for five restraints upon the activities of Ms Tillman following the end of her employment, all limited to the six months which would immediately follow it. By the first, in clause 13.1, she covenanted not to endeavour to entice away from the company any of its employees in specified senior positions.

7

The other four restraints were included in clause 13.2. Its introductory words, arguably relevant to Issue (B), are as follows:

“You [Ms Tillman] 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 …”

By the first of the other four restraints, set out in clause 13.2.1, Ms Tillman covenanted not to solicit the custom of, nor to deal with, specified suppliers of services to the company. By the second, set out in clause 13.2.2, she covenanted not to seek to interfere with supplies to the company. By the fourth, set out in clause 13.2.4, she covenanted not to use any name likely to be confused with any name recently used by the company.

8

The third of the restraints in clause 13.2, set out in clause 13.2.3, is central to all the issues in the appeal. There Ms Tillman covenanted that she would not

“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 12 months prior to that date and with which you were materially concerned during such period.”

I will refer to this as “the non-competition covenant”.

9

By clause 13.3, Ms Tillman acknowledged that the provisions of clause 13 were fair, reasonable and necessary to protect the goodwill and interests of the company. Clause 13.4 provided:

“If any of the restrictions or obligations contained in this clause 13 is held not to be valid as going beyond what is reasonable for the protection of the goodwill and interest of the Company … but would be valid if part of the wording were deleted, then such restriction or obligation shall apply with such modifications as may be necessary to make it enforceable.”

10

As I will explain, the question raised in Issue (B) relates to whether the word “interested” in clause 13.2.3 purports to prohibit Ms Tillman from holding any shares in a company conducting business in competition with such businesses there specified as were conducted within the company's group. To that question an earlier clause of the agreement, casting a restraint upon her during the period of her employment, is arguably relevant:

“4.5. You shall not, during the course of your employment, directly or indirectly, hold or have any interest in, any shares or other securities in any company whose business is carried on in competition with any business of the Company …, except that you may hold or have an interest in, for investment only, shares or other securities in a publicly quoted company of up to a maximum of 5% of the total equity in issue of that company.”

11

On 30 January 2017 Ms Tillman's employment by the company came to an end. Shortly thereafter she informed it that she intended to start work, on (as she later added) 1 May 2017, as an employee of a firm which was in competition with the company. She made clear that she intended fully to comply with all her covenants in the agreement apart from that in clause 13.2.3. She conceded that, by its terms, this last clause prevented her entry into the proposed employment but alleged that it was in unreasonable restraint of trade and therefore void.

12

On 10 April 2017 the company issued proceedings in which it applied for an interim injunction to restrain Ms Tillman's entry into the proposed employment. On the undertaking of the company to compensate her in damages if the court were later to hold it not to be entitled to the injunction, she undertook not to enter into the proposed employment until the court had determined the application.

13

The lower courts were impressively accommodating to the fact that the issue related to a covenant which on any view had no effect beyond 30 July 2017. On 15 and 16 May 2017 Mann J heard the company's application and on 23 May he delivered a substantial judgment in which he granted the injunction: [2017] EWHC 1278 (Ch), [2017] IRLR 828. On 11 July the Court of Appeal heard Ms Tillman's expedited appeal and on 21 July, by a judgment delivered by Longmore LJ with which Patten and Sales LJJ agreed, it upheld it, set aside the injunction and dismissed the company's claim: [2017] EWCA Civ 1054, [2018] ICR 574. It is against the Court of Appeal's order that the company brings the present appeal.

14

The temporal limitation of the dispute and therefore the reality that determination of the company's application would dispose of the whole claim also led the parties to agree, and Mann J to accept, that the grant of the injunction should depend on a closer inquiry into the merits of the company's claim than whether it merely raised “a serious question” apt to the conventional determination of an application for an interim injunction: NWL Ltd v Woods [1979] 1 WLR 1294.

15

By her Defence, Ms Tillman alleged that the non-competition covenant exceeded the company's need to protect its legitimate interests, and was therefore void, for no less than five different reasons. But, by the time of the hearing before Mann J, the substantial focus was on one argument alone. It was...

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13 firm's commentaries
  • Complex Commercial Litigation Law Review – England and Wales
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    ...Civ 1641, paragraphs 29, 73 and 74.24 Merthyr (South Wales) Ltd v. Merthyr Tydfil CBC [2019] EWCA Civ 526).25 Tillman v. Egon Zehnder Ltd [2019] UKSC 32.26 In that regard, the Unfair Contract Terms Act 1977 requires limitation clauses to be ‘reasonable’.27 This principle has limited applica......
  • UK Employment Update – Summer 2019
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    • 19 August 2019
    ...tool for employers. Restrictive covenants: The UK Supreme Court has handed down its much-anticipated judgment in Tillman v Egon Zehnder [2019] UKSC 32. Ms Tillman's employment contract included a number of post-termination restrictions, including a non-compete clause that meant she could no......
  • UK Employment Flash - August 2019
    • United Kingdom
    • JD Supra United Kingdom
    • 13 August 2019
    ...goodwill, customer connection and the stability of the workforce. The Supreme Court’s July 2019 decision in Tillman v Egon Zehnder [2019] UKSC 32 was the first time in a hundred years that the highest court in the UK had considered the law of post-employment restraints and when they may amo......
  • UK Employment Flash
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    • Mondaq UK
    • 16 August 2019
    ...goodwill, customer connection and the stability of the workforce. The Supreme Court's July 2019 decision in Tillman v Egon Zehnder [2019] UKSC 32 was the first time in a hundred years that the highest court in the UK had considered the law of post-employment restraints and when they may amo......
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