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By Spencers Solicitors

  Liam Kenealy    
  July 5, 2019

Amending Restrictive Covenants

The use of restrictive covenants in contracts of employment continues to be an area of dispute between employer and employee. Quite often an employee will agree to various clauses in their contract that impose restrictions on what they can do once they leave. Normally this will include restrictions on poaching clients/customers and employees, interfering in the supply of services/products, and also preventing the employee from working in competition with the employer.

The Supreme Court has recently determined in the case of Tillman v Egon Zehnder Limited that where a restriction of this type is unreasonable, but words could be removed to make it reasonable which would not affect the remainder of the clause, then the offending words can be severed.

This case concerned a clause that prevented Ms Tillman from working in competition for 6 months after she left Egon Zehnder Limited ("EGL"). The clause also prevented her from being 'interested in' a competitor business, which Ms Tillman argued went further than was reasonable, as it prevented her from even holding a small shareholding in a competitor. She therefore argued that this made the whole clause invalid.

The Supreme Court held that the clause did go too far but that the words 'interested in' could be removed and the rest of the clause would make sense without adding or modifying the remaining words and would be reasonable. The restriction was therefore deemed to be binding, although the 6-month restriction had long since expired.

There are a number of factors that impact on whether a clause is reasonable and therefore enforceable including geographical restrictions, the time period applied to it, the seniority of the employee, and when the restriction was proposed/agreed to. It is important from an employer's perspective that they are well drafted and reviewed. From an employees perspective, it might sound negative to consider the end of the employment relationship, but the time to discuss and negotiate the clauses is before you have agreed to them.

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