Recruitment firm prevents former employee joining rivals

A recruitment company has successfully appealed against a decision to allow one of its former employees to join a competitor as a shareholder.

Egon Zehnder moved to prevent its former employee Ms Tillman from joining a rival firm.

In her contract there had been a post-termination non-competition covenant. It stated that the employee should not "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".

Tillman wished to join one of Egon’s competitors within six months of leaving so the company applied for an injunction to uphold the covenant.

However, the Court of Appeal rejected the application. It held that the word “interested” in the covenant prevented Tillman holding even a minority shareholding in any competing business. It said it exceeded Egon Zehnder’s need to protect its interests and was an unreasonable restraint of trade.

Egon appealed that decision and the case went to the Supreme Court.

The key element of the case was considered. Did the covenant’s use of the word “interested” fall within the restraint of trade doctrine? Was it unenforceable?

Egon conceded the use of the word “interested” was not ideal but argued the remainder of the covenant should still apply.

The court refused to sever the word “interested” from the covenant but took a practical approach as to whether the restraint of trade doctrine applied.

It agreed that not being allowed to become a shareholder in the competitor company affected Tillman’s ability to work. However, even as a minority shareholder she could influence the competitor’s operations which could be damaging to Egon Zehnder.

The decision was overturned and the injunction against Ms Tillman joining the competitor for six months was granted.

Please contact us if you would like more information about the issues raised in this article or any aspect of protecting your business.

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