UK: Restrictive covenants – non-competes should not prevent minority shareholdings; non-solicits should usually only apply to individuals with whom the employee dealt

Employers should check that their template restrictive covenants prohibiting being directly or indirectly engaged or ‘concerned’ or ‘interested in’ competing businesses expressly carve out and permit minor shareholdings. The Court of Appeal has overruled a High Court decision in Egon Zehnder Ltd v Tillman, finding that the phrase “concerned or interested in” was unambiguous in covering all shareholdings. As a result, the covenant was held to be too wide and unenforceable against an employee (who in fact was actually seeking to compete more directly). The Court also confirmed that it was not possible to ‘blue pencil’ or sever the offending words as severance can only be applied to a single covenant and not to parts of a single covenant (unless it is in effect a combination of several distinct covenants).

Another recent case highlights that restrictive covenants prohibiting soliciting clients or poaching employees should usually only cover individuals with whom the employee had personal and material dealings during their employment. In Capita v Darch the Court considered that covenants which extended to clients of whom the employee had become aware during his employment and employees who were ‘likely to be able to assist or benefit a business in or proposing to be in competition with the employer’, without there needing to be any personal connection, were likely to be unenforceable.

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