Egon Zehnder Ltd v Tillman [2017] EWHC 1278 (Ch)

Application for an injunction to enforce an employee restrictive covenant which, if effective, would restrain the defendant from working for a competitor of the claimant for a period of six months from the termination of her employment. The injunction was granted.

The Defendant was co-Global Head of the Financial Services Practice Group in a company (the Claimant) which offers what it describes as "professional services" with a particular focus on executive search and advisory services for its clients. She resigned in January 2017 having accepted another job in New York, intending to start on 1 May 2017, but the terms of a restrictive covenant in her contract prevented her from starting this role until the end of July. This hearing was to determine whether the clause in this case was wider than was necessary to protect the legitimate interests of the Claimant.

The court allowed the application and the injunction was granted.

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Case No: HC-2017-001053

Neutral Citation Number: [2017] EWHC 1278 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Rolls Building, 7 Rolls Buildings

Fetter Lane, London, EC4A 1NL

Date: 23/05/2017

Before :

MR JUSTICE MANN

Between :

Egon Zehnder Ltd (Claimant)

- and -

Mary Caroline Tillman (Defendant)

Mr James Laddie QC (instructed by RPC LLP) for the Claimant

Mr Daniel Oudkerk QC and Ms Amy Rogers (instructed by Simmons & Simmons LLP) for the Defendant

Hearing dates: 15th & 16th May 2017

Judgment

Mr Justice Mann :

Introduction

  1. This is an application for an injunction to enforce an employee restrictive covenant which, if effective, would restrain the defendant from working for a competitor of the claimant for a period of six months from the termination of her employment. Her employment came to an end on 30 January 2017, and the covenant therefore expires on 30th of July 2017. The defendant informed the claimant that she intended to start working for a new employer on 1st May 2017. Proceedings were issued on 10 April 2017 and an application notice seeking an injunction was issued on the same date. The agreed procedure and exchanges of evidence brought this matter to a hearing for one day on 15th May. In fact it took a little over one day to hear, and even that required a significant degree of economy of presentation. The defendant has not yet started working for the competitor in her intended role (though she has just been offered an alternative temporary role), and is awaiting the outcome of this application. If the application were not disposed of swiftly than the bulk of the period of her restriction would have expired anyway. Accordingly, the matter had to be dealt with quickly.
  1. That situation has given rise to 3 principal effects so far as the conduct of the application is concerned. First, the evidence has been, to a degree, hurried. A significant part of the evidence in reply came in only two working days before the application was heard. A significant part of that evidence amounted to new historical material, apparently just discovered by the claimant, which would probably have been more accurately described as new evidence in chief. The defendant would not have had a chance to deal with that new evidence in detail without an adjournment which, for understandable reasons, she said she did not want. Accordingly I have had to approach that evidence with some care and not simply treat it as clear and unrebutted evidence against the defendant (so far as it operates against the defendant). Second, in order to fit submissions within the timeframe of the hearing time available the parties have had to be even more economical in their submissions than they might otherwise have been, particularly bearing in mind the fact that it is common ground that I should have regard to the merits of each side's case notwithstanding that this is only an application for an interim injunction (see below). One day was probably a rather ambitious target for that process, and I allowed the parties to go into a second day. Submissions were still, perforce, limited and economical. I should record that both Mr Laddie QC for the claimant and Mr Oudkerk QC for the defendant made their submissions with commendable clarity and economy, both of them recognising the need to conduct the case swiftly, notwithstanding the weight of the material and the significance of the matter to the parties. Third, the timescale means that it was necessary to prepare and deliver this judgment swiftly, so that the parties knew where they stood, and that means that this judgment probably omits some of the elaboration which might otherwise have been present had such haste not been required.

The approach to this application

  1. It is agreed between the parties that this is one of those cases in which the court has to go beyond American Cyanamid principles, notwithstanding the fact that the application is an interim application, and consider the merits of each side's case. It is a case like Lansing Linde Ltd v Kerr [1991] 1 WLR 251 in which Staughton LJ said:

"If it will not be possible to hold a trial before the period for which the plaintiff claims to be entitled to an injunction has expired, or substantially expired, it seems to me that justice requires some consideration as to whether the plaintiff would be likely to succeed at a trial. In those circumstances it is not enough to decide merely that there is a serious issue to be tried. The assertion of such an issue should not operate as a lettre de cachet, by which the defendant is prevented from doing that which, as it later turns out, he has a perfect right to do, for the whole or substantially the whole of the period in question. On a wider view of the balance of convenience it may still be right to impose such a restraint, but not unless there has been some assessment of the plaintiff's prospects of success. I would emphasise "some assessment", because the courts constantly seek to discourage prolonged interlocutory battles on affidavit evidence. I do not doubt that Lord Diplock, in enunciating the American Cyanamid doctrine, had in mind what its effect would be in that respect. Where an assessment of the prospects of success is required, it is for the judge to control its extent." (Page 258A-D)

  1. The argument before me basically went almost exclusively to the respective merits of the parties' cases with little or no reference to normal American Cyanamid principles. The parties were implicitly, if not explicitly, inviting me to decide this case primarily by reference to the merits rather than the balance of convenience (though there was some limited reference to discretion). I have therefore approached this application on the basis of assessing the merits on the evidence as it stands (bearing in mind the evidential considerations referred to above and the fact that certain disputes of fact cannot be resolved on this application).

Facts

  1. The claimant is the UK subsidiary company of a worldwide group ("the EZ group") whose holding company is Swiss. It offers what it describes as "professional services" with a particular focus on executive search and advisory services for its clients. Those services involve identifying the needs of employer clients in terms of its senior executives and then going out and trying to identify and bring home candidates. It would seem to be a very specialised function. The candidates tend to be high level candidates, often from major organisations. An engagement can take months to fulfil – on the claimant's case it can take an average of six months, though many take less time than that. Furthermore, the business does not merely involve a series of discrete assignments. The group companies get closer to the business of the clients than that, becoming what is described in the evidence as a "trusted advisor" and developing an understanding of the client's business and senior employment needs. In addition to executive search functions the group carried out "mapping" (a mapping exercise to assess the talent in the market, requested by a client), non-executive search, management appraisal and development and board effectiveness reviews.
  1. The group operates in many jurisdictions, in each country via a locally incorporated company. The claimant is, as already indicated, the UK company which fulfils the group's functions in the UK. All UK-based employees are employed by the claimant. However, notwithstanding that structure, there is a very considerable cross-group engagement between the various entities, with large-scale cooperation in fulfilling assignments and in strategic planning across the various business areas of the group. This is not surprising when the best candidate for, say, a UK post may be someone in the US or Europe. A worldwide approach is often taken to business planning. The claimant herself is an example of UK employees who nonetheless operated outside the UK and in the sphere of other non-UK group companies.
  1. The group has nine practice areas of which financial services is one (and the relevant one for the purposes of this application). The others are (and were) consumer, industrial, health, services (eg transport, logistics, travel), technology and communications, public and social enterprise and private equity. Within the Financial Services Practice Group (whose function is what it sounds like) practitioners may be members of Global Practice Groups, core global group members, members of regional practice groups, core regional group members and local group members. Quite what the remit of each of those groupings are was not made clear in the evidence, but that does not matter. It is sufficient to note the worldwide nature of operations suggested by the names. The financial services area is very important for the claimant group – it currently generates 22.5% of global revenue billings; at the time the defendant was recruited it accounted for 17.6% of global billings. The services are offered worldwide and the various participating companies in the group service the world's largest financial institutions, including 13 of the world's 20 largest investment banks.
  1. There are a large number of operating companies, each incorporated in the jurisdiction in which it operates. Each such locally incorporated company employs the individuals who operate in that jurisdiction. So far as the Financial Services Practice Group is concerned, wider management, control and planning is done via sub-group leaders (one for each "segment" of business within the group) and a Global Leader of the Group (a position which the defendant attained before she left).
  1. Those engaged by the claimant are not recruited from those already working in similar companies doing similar work. They recruit from those who are in the field for whom they are to find candidates. Thus the defendant had already had a distinguished career in investment banking (she had become a European managing director and COO of JP Morgan before taking a career break), and was recruited to work in the financial services group. New appointees are designated consultants and are paid on a salary and bonus basis. The next rung is designated principal, and finally there are partners. That last status carries with it a shareholding in the holding company and a profit share from the worldwide business. Becoming a partner does not, apparently, affect the status of UK employees as employees of the UK company. The original contract carries on throughout the individual's career. The evidence did not disclose what marks of distinction arose on the transition from consultant to principal, and principal to employee. There must have been something, because paragraph 2.1 of the contract provided that Mrs Tillman was employed "as consultant of the Company". Whatever it may have been, in practical terms the status of the employee changed, and it is probable that the upper two levels involved greater leadership roles, and greater roles in business management.
  1. There is a dispute on the evidence as to the extent to which all employees are effectively peers in the working environment. I think it unlikely that they are in the sense of all doing the same work. As I have already indicated, it is likely that there is an increasing layer of responsibility as one goes up the ranks, though I accept that, at least after an initial period, consultants are trusted with a lot of responsible activity. Some of them, like Mrs Tillman, would be entrusted more to lead assignments, than others.
  1. The defendant started employment with the claimant on 5th January 2004 as a consultant, under the terms of a letter of appointment dated 16th December 2003. I set out the material terms of that letter below. The evidence makes no bones about the fact that she was considered to be a considerable prize. It was anticipated by the claimant that she would rise through the ranks quickly, and be a great success in the EZ group, and that has proved to be the case. Her starting salary (£120,000) and guaranteed bonuses (£100,000 in the first year and a minimum of £50,000 in the second year) reflected that fact. It was rather more than a consultant would normally expect. She was promoted to principal fairly soon afterwards (and unusually early), in January 2006 and to partner at what is described as the earliest possible opportunity in January 2009. She did not sign any further contract at those two stages. She became Global Head of Investment Banking in 2006 and co-Global Head of the Financial Services Practice Group in 2012.
  1. I shall deal with her activities when I come to consider the basis on which it is said her restrictive covenants are or are not enforceable. On 23rd January 2017 she announced that she was resigning and a week later, on 30th January, the claimant terminated her employment forthwith, giving her 3 months in lieu of notice as they were entitled to under her contract. The circumstances in which she came to leave are disputed but not relevant to any of the issues I have to decide. It is sufficient to note that in due course she notified the claimant that she wished to start working for Russell Reynolds Associates ("RRA"), an American firm carrying on a similar business, based in New York, on 1st May 2017. It is contended that for her to do so would be a breach of a non-compete clause in her contract. Whether that clause is enforceable is the issue that arises on this application.
  1. It is right that I should record that Mrs Tillman has clearly acknowledged that she is bound by the non-solicitation, non-dealing and confidentiality terms in her contract and has stated clearly she has no intention of breaching them. She maintains that she will be able to conduct herself in her new role in RRA without risking breach. The only thing that she challenges is the application of the non-compete clause insofar as it prevents her working for RRA before the end of July.

The terms of her contract

  1. The following are the material terms of her contract, in summary or verbatim as appropriate:

The claimant is described as "the Company".

"Group Company: means Any company which is the parent undertaking or a subsidiary undertaking of the Company or other subsidiary undertaking of the Company's parent undertaking from time to time ..."

  1. Clause 3 describes the defendant's place of work as being the claimant's "normal place of work" with offices in London. Clause 3.2 provides:

"You may be required to transfer your place of work (including by way of relocation at the Company's expense) to such other locations in the United Kingdom or elsewhere as the Company may reasonably direct."

  1. Clauses 4.4 and 4.5 contains restrictions on engaging in other businesses and on shareholdings during the period of employment:

"4.4 You may not, directly or indirectly, engage in any other business or employment (whether paid or not) during or outside your hours of work for the Company.

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 or any Group 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 per cent of the total equity in issue of that company."

  1. I have already summarised the defendant's remuneration provisions. Clause 10 contains "Confidentiality provisions." One contains a restriction on the disclosure of confidential information at any time during or after the employment and clause 10.3 contains a non-exhaustive list of matters which are to be treated as confidential.
  1. Clause 13 contains post-termination covenants. Clause 13.1 contains a clause preventing poaching of employees of the Group. Clause 13.2 contains other post-termination restrictions, including the non-compete clause (as it has been called in this application) which lies at the heart of this application – clause 13.2.3, which I have emphasised for clarity. The clause reads (so far as material):

"13.2. 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:

13.2.1 solicit the custom of or deal with any person, firm or company with whom or which you may have regularly dealt with in respect of services of a type which at all within a period of twelve months prior to the Termination Date were or has been supplied by the Company or which the Company or any Group Company is or was in the process of negotiating to supply to a person, firm or company in question;

13.2.2 interfere or seek to interfere with the continuance of supplies to the Company and/or any Group Company (or the terms relating to those supplies) from any person, firm or company supplying the components, materials or services to the Company or any Group Company;

13.2.3 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;"
  1. Clause 13.3 reads:

"13.3 You acknowledge that the provisions of this clause 13 fair and reasonable and necessary to protect the goodwill and interests of the Company and the Group Companies and shall constitute separate and severable undertakings given for the benefit of each of the Company and each Group Company and may be enforced by the Company on behalf of them."

No-one made any submissions about the effect, if any, of this clause.

  1. Clause 13.4 contains a contractual severance provision which was drawn to my attention but on which nothing turns.

The applicable law

  1. The defendant says that the non-compete clause is void as being wider than reasonably required for the protection of the claimant's interests and is therefore void. She invokes familiar restraint of trade principles which govern the validity of employee restrictive covenants.
  1. There was no material dispute on the applicable legal principles, which can be summarised by quoting the following extracts.
  1. The basic law is summarised in Chitty on Contracts at paragraph 16-085:

"All covenants in restraint of trade are prima facie unenforceable at common law and are enforceable only if they are reasonable with reference to the interests of the parties concerned and of the public. Unless the unreasonable part can be severed by the removal of either part or the whole of the covenant in question, its inclusion renders the covenant or the entire contract unenforceable. A covenant in restraint of trade (if unreasonable) is void in the sense that courts will not enforce it, but if the parties wish to implement it they would not be acting illegally and the courts would not intervene to prevent them from doing so. It has been held that "a covenant which is unenforceable ab initio should simply be disregarded unless and until it is subsequently and explicitly re-agreed". … The validity of a covenant in restraint of trade is assessed at the date when the contract is entered into."

  1. Cox J summarised the process of the application of the relevant principles of reasonableness and discretion in TFS Derivatives Ltd v Morgan [2005] IRLR 246 at paras 36-9:

"36. … In assessing reasonableness, there is essentially a three-stage process to be undertaken.

  1. Firstly, the court must decide what the covenant means when properly construed. Secondly, the court will consider whether the former employers have shown on the evidence that they have legitimate business interests requiring protection in relation to the employee's employment ….
  1. Thirdly, once the existence of legitimate protectable interests has been established, the covenant must be shown to be no wider than is reasonably necessary for the protection of those interests. Reasonable necessity is to be assessed from the perspective of reasonable persons in the position of the parties as at the date of the contract, having regard to the contractual provisions as a whole and to the factual matrix to which the contract would then realistically have been expected to apply.
  1. Even if the covenant is held to be reasonable, the court will then finally decide whether, as a matter of discretion, the injunctive relief sought should in all the circumstances be granted, having regard, amongst other things, to its reasonableness as at the time of trial."

Both sides invited me to adopt that approach.

  1. Within that process the following additional legal points arise.
  1. First, and of some significance to this case, the question of reasonableness has to be judged as at the time the contract was agreed, and not at some later point of time, whether the point of time at which the question has arisen or some intermediate time. This point was made by Diplock LJ in Gledhow Autoparts Ltd v Delaney [1965] WLR 1366 at p1375:

"The defendant was in fact employed for over six years by the plaintiffs and no doubt became a valuable servant and acquired considerable knowledge of and personal relation with the plaintiffs' customers. It is natural in those circumstances to tend to look at what in fact happened under the agreement. But the question of the validity of a covenant in restraint of trade has to be determined at the date at which the agreement was entered into and has to be determined in the light of what may happen under the agreement, although what may happen may cover many possibilities which in the result did not happen. A covenant of this kind is invalid ab initio or valid ab initio. There cannot come a moment at which it passes from the class of invalid into that of valid covenants."

  1. That is not to say that one only looks at the actual position as at the date the employment started. If one looked at that position alone few covenants would be valid because in most cases the employee will not have engaged fully enough with the business to justify it. One has to go further and look at what was in the contemplation of both parties. That contemplation can include promotion. Diplock LJ made plain the appropriateness of looking at the contemplated future, and the question of promotion was dealt with in Allan Janes LLP v Johal [2006] ICR 742 (Bernard Livesey QC, sitting as a deputy judge of the Chancery Division):

"38 ..It is a fundamental principle that the reasonableness of the restriction must be interpreted in accordance with what was in the contemplation of the parties at the date when the contract was made and not as matters in the end turned out. The reason for this is that the covenant will have been formed at the beginning of the employment in the light of what was in the contemplation of the parties at that time….

  1. Since the defendant was recruited into a senior position with a mutual hope that it would mature into a partnership offer, it clearly was within the actual contemplation of the parties that the claimant would promote the defendant to all its actual and target clients, that she would assist in marketing, would generate relationships with actual and potential clients and might well be successful in generating clients from just the sort of introductions as were the natural consequence of each of the marketing events on which the claimant spent its money."
  1. This was said in the context of an attempt by the defendant to narrow the view taken of reasonableness by reference to what actually happened after the employment started, which was that the defendant did not perform as well, or generate as many new clients, as was anticipated. The judge rejected that submission on the basis of the above principles.
  1. Submissions were made by Mr Oudkerk on the possible application of Patsystems v Neilly [2012] IRLR 979. In that case Underhill J accepted the proposition that reasonableness should be assessed looking forward from the date the covenant was entered into, but also held that where the employee confirmed the original terms of the contract on subsequent promotions, an originally void provision was not revived when the original terms were confirmed, without anything in the nature of real fresh contract, on subsequent promotions. Mr Laddie did not disagree with this proposition, but said it did not detract from the need to look forward (to an appropriate extent) from the beginning of the contract. I accept that proposition. In fact, on the evidence put before me in this case the Patsystems point does not apparently arise because it was not said that there was some sort of reviving fresh contract when Mrs Tillman moved (as she did) from consultant to principal and from principal to partner (or in relation to her elevations to Global Head of Investment Banking and to Global Head of Financial Services, which Mr Oudkerk also treated as promotions). Her contract apparently remained the same, though her remuneration obviously increased.
  1. Next, in assessing reasonableness of a non-compete clause the court should consider whether some lesser form of protection would in fact give adequate protection, such as clauses preventing soliciting and clauses protecting confidential information (which clauses exist in the present case). This point was made by Sir Christopher Slade in the Court of Appeal in Office Angels Ltd v Rainer-Thomas [1991] IRLR 214:

"49. … The Court cannot say that a covenant in one form affords no more than adequate protection to a covenantee's relevant legitimate interests if the evidence shows that a covenant in another form, much less far-reaching and less potentially prejudicial to the covenantor, would have afforded adequate protection."

  1. So far as the width of the term is concerned, reasonableness must be judged by reference to reality and not to extravagant possibilities. In Home Counties Dairies Ltd v Skilton Salmon LJ [1970] 1 WLR 526 said (at p 526):

"If the clause is valid in all ordinary circumstances which can have been contemplated by the parties, it is equally valid notwithstanding that it might cover circumstances which are so 'extravagant', 'fantastical' 'unlikely' or 'improbable' that they must have been entirely outside the contemplation of the parties".

  1. So far as construction is concerned Mr Laddie submitted that, in the event of competing instructions, one which preserved the validity of the clause should be preferred. I accept that submission. In TFS Derivatives Ltd v Morgan [2004] EWHC 3181 (QB) Cox J said:

"43. I accept Mr Reade's submission that if, having examined the restrictive covenant in the context of the relevant factual matrix, the Court concludes that there is an element of ambiguity and that there are two possible constructions of the covenant, one of which would lead to a conclusion that it was in unreasonable restraint of trade and unlawful, but the other would lead to the opposite result, then the court should adopt the latter construction on the basis that the parties are to be deemed to have intended their bargain to be lawful and not to offend against the public interest."

  1. Last, it is possible, though only under limited circumstances, to sever part of what would otherwise be an over-wide restraint. As Cox J summarised in TFS:

"40. If they restrictive covenant applying after employment has terminated is held to be unreasonable, then it is void and unenforceable. The court cannot read down such a clause in an effort to render it reasonable and enforceable. In certain circumstances, however, if only a discrete phrase within a particular covenant is held to be unreasonable, individual words or phrases may be 'blue-pencilled' or severed, provided that what is left makes independent sense without the need to modify the wording and that the sense of the contract is not changed …"

  1. Those principles provide the legal framework for considering the questions which arise in this case. There are one or two more minor references which will have to be made to authority, but that can more conveniently be done in the context in which the points arise.

Two points of construction

  1. There are two points of construction which arise, one of which would be capable of determining the case in favour of the defendant by itself without much more further elaborate reasoning if it went in the defendant's favour. I shall deal with these points at this stage of this judgment. The first is, or relates to, the question of the territorial scope of the covenant. The second is whether the non-compete clause prohibits the defendant from holding shares in competing companies.
  1. The first point goes to global reach, and I think that by the end of the hearing it had emerged that there was not much left in it, but I will deal with it briefly. The defendant detected, perhaps not without reason, that the claimant was originally maintaining that the non-compete clause prevented Mrs Tillman from engaging in activities which competed with her sphere of activities anywhere in the world, and that was said by the defendant to make it far too wide and therefore unenforceable. The position of the claimant, at least by the time of the hearing, was that that was not what the clause meant. The clause had a narrower ambit and prevented her from competing only in those geographical areas where she had been involved in EZ Group business.
  1. If there remains any dispute on construction I agree with the claimant. The clause prevents involvement in any business which competes with "the businesses of the Company or any Group Company … with which you were materially concerned during such period". The period is 12 months prior to the termination of her appointment. There is no express territorial limitation or extension in those words, and since Group Companies were incorporated and operated in a very large number of countries, and each of those companies has "businesses" then the potential for worldwide operation comes in via the unemphasised words. However, the emphasised words impose a very significant limitation. They confine the restriction to those businesses with which Mrs Tillman was "materially concerned". Each local company in the group conducted its own business or businesses. If Mrs Tillman had not been "materially concerned" with the local business of that local company then the clause would not bite in relation to the area of that business and company. Thus there is an in-built restriction on the global reach to the clause, deriving from the need for Mrs Tillman to have been involved locally. Once that is appreciated what might otherwise have been an objectionable global reach falls away. Mr Laddie was prepared to justify a global effect, but does not have to.
  1. Mr Laddie's argument restricted the reach further, by treating each area of local company (financial services, retail and the like, as identified above) as separate businesses for these purposes, thus limiting the scope of the clause further. Mr Oudkerk did not seem to challenge that analysis, so I do not need to say anything more about it.
  1. The second construction point is one that could deliver success to the defendant if she is right on it. She takes the point that being "interested in any business carried on in competition" with the claimant or EZ group included having a minor shareholding in a competitor, and that a restriction to that effect was wider than was reasonably necessary for the protection of the legitimate interests of the claimant and therefore void. Mr Laddie agreed that if that was the effect of the clause it would render it void, but disputed the effect. He pointed to the fact that clause 4.5 expressly limits shareholding during the employment but allows a 5% shareholding in publicly quoted companies. He says it would be commercially anomalous if the non-compete covenant restricted all shareholdings (including the otherwise innocuous 5% holding in a public company) because then the post-restriction covenant would be wider than the obligations during employment. He therefore submits that the words "interested in any business", which might well otherwise be capable of catching a shareholding, should be construed so as not to do so. That did not mean that the word "indirectly" had no real effect; it would be capable of catching business conducted via proxies.
  1. In making his submissions Mr Laddie prayed in aid support from Tradition Financial Services Ltd v Gamb EWHC 768 (QB). In that case, like the present, there was a clause in the contract which prevented the employee being "directly or indirectly engaged or concerned in the conduct of any other business" and from being "directly or indirectly financially interested in any such business" during his employment with an exception for holding no more than 5% of any class of securities in one company (listed or unlisted) – see paragraph 126. The non-compete covenant in that case is set out at paragraph 124 and it said:

"You agree… you will not… directly or indirectly do or attempt to do any of the following:

(a)… undertake, carry on or be employed, engaged or interested in any capacity in either any business activity which is competitive with Relevant Business… or any business activity an objective or anticipated result of which is to compete with Relevant Business…".

  1. The judge (Foskett J) had to consider whether "interested" in relation to a competitive business included a shareholding. He concluded that in the light of the existence of the prior clause which expressly related to shareholdings and permitted a 5% holding, it should not be so construed. His reasoning is set out over three paragraphs of the judgment, including one which summarised counsel's argument (Mr Oudkerk, as it happened) and accepted it.

"127. His [viz Mr Oudkerk, appearing for the claimant employer] argument is that the contract must be read as a whole, that there is express provision (Clause 3.2) relating to shareholdings during the currency of the contract (which permits a limited quantum of shareholding in another company) and that it cannot sensibly have been intended that D1 should be subject to a more onerous restriction as to shareholdings after his employment had terminated than whilst still an employee, particularly if it is suggested that the more onerous obligation is created by a clause that makes no express reference to shareholdings at all. In other words, whatever "interested in any capacity … in any business activity" means, it cannot be a reference to a shareholding. By way of emphasis he submits that Mr Cohen's interpretation would mean that D1 could have had a 1% shareholding whilst he was employed (because the ceiling was 5%) but as soon as he was no longer employed he would have to sell his 1% shareholding.

  1. He also suggests that passive investment by way of a minority shareholding is not a "business activity" since the only kind of business activity to which the clause could relate was the activity of the relevant desks. If that argument was the only argument on this issue, I would be less convinced by it. "Business activity" is a wide and somewhat amorphous expression and might, when combined with the concept of an "indirect interest" in such an activity, embrace involvement in a company that carried out IDB work simply through owning a shareholding in that company. However, I consider that reaching such a conclusion would require some other indicia in the contract and I do not see the presence of such indicia: indeed Mr Oudkerk's primary argument set out in paragraph 127 above seems to me to negate it. If I was wrong about that, I would certainly conclude that the expression relied upon by Mr Cohen was ambiguous and, by applying the principle set out in paragraph 20 above, it should be construed as rendering the provision valid rather than invalid.
  1. I see this as a straightforward issue of simply seeking to give effect to the proper meaning of this contract. I have not, of course, overlooked the authorities to which Mr Cohen referred, including Scully (UK) Ltd v Lee [1998] IRLR 259, but they do not, in my judgment, take the issue any further. Each involved the construction of the particular contract in question and, as Mr Oudkerk observes, in Scully the non-compete clause made express reference to "shareholdings" whereas that is not the case here."
  1. Although the wording in that case was obviously different, it is sufficiently similar to allow the conclusion to be highly persuasive for the purposes of the present case. Mr Laddie said I should follow the same course. Mr Oudkerk, in his role as counsel for the defendant in this case, said I should not. He said that the words "interested in" caught a shareholding and there was no ambiguity which required resolution by looking for other indicia as to the intended meaning. He pointed to CEF Holdings Ltd v Mundey [2012] IRLR 912 at paragraph 95, in which Silber J held (at paragraph 95) that the concept of having "any interest" in a company would include having one share. He also pointed to White Digital Media Ltd v Weaver and Outlook Publishing Ltd [2013] EWHC 1681 (QB) which he said was to the same effect. The contract in Tradition was said to be different, and should be viewed differently, because of the nature of the business involved and in any event the judgment was made under pressure of time (a somewhat unworthy submission, in my view). In essence, there was no ambiguity in the present case, the words were clear, and that was an end of it.
  1. I consider that there is sufficient ambiguity in the expression "directly or indirectly… interested in any business" to justify considering indicia as to what was really meant. All three concepts - "engage", "be concerned" and "interested" - are linked to the concept of "business", not an entity. The first two connote a close connection in the nature of a real involvement in the actual conduct of the business. The third imports a lesser connection, but it is capable of taking its colour from the first two. It would cover an actual interest in the business (as in a partnership, for example). It would be capable of stopping there, with an "indirect" interest being such an interest held through a nominee. On the other hand it would also, as accepted by Mr Laddie, be capable of catching a shareholding - that would be a form of indirect interest in the business (though a more tenuous one). That lack of complete clarity justifies looking for indicia elsewhere, and for the same reasons as Foskett J I find that the presence of clause 4.5, which expressly deals with shareholding (so the parties know how to deal with that problem if it arises) and yet permits a limited shareholding, demonstrates that the non-compete clause was not intended to deal with shareholding at all. Otherwise the anomaly identified above would exist. I consider that on normal principles of construction it would be right to favour a construction which does not give rise to an anomaly, and in addition it would be right to favour a construction which validated rather than invalidated the clause (TFS Derivatives, above). It follows that this construction point does not lead to an invalidation of the clause.
  1. If his argument had failed Mr Laddie said (albeit faintly) that the clause could and should be saved by severance. He invited the blue-pencilling of the words "or interested". I do not have to deal with this argument, and it was not developed by either party at any length, and it will suffice to say that I did not find it appealing.

The width of the clause

  1. Under this heading I deal with the substantial question of whether the clause in this case was wider than was necessary to protect the legitimate interests of the claimant.
  1. The claimant has identified the interests which it says it is entitled to protect via the non-compete clause, and why it is that the non-solicitation, non-dealing and confidentiality clauses are not enough. It says that those interests are (predictably) client and candidate connections and the company's (and group's) confidential information (as well as some client confidential information).
  1. At one level this is not a difficult point to determine. The nature of the information to which Mrs Tillman became privy is of a nature which would admit of justifiable protection. I have summarised the information in the preceding paragraph. Leaving aside candidate confidential information, which probably has lesser attributes justifying protection (because the confidentiality is more ephemeral in that it lasts only during the dealings with the candidate) the other areas certainly give rise to a protectable interest if available to the employee in sufficient quantity and quality. The nature of the dealings with clients, some of whom are worldwide operators, is such that an employee would (depending on his or her level) get close to the client, its structures and plans to an extent which would give the claimant (or other company in the EZ group) a very valuable tie and resource for the future. It is a very substantial client connection. Internal confidential information is also information with the characteristic of protectability, and employees have access to that, again in varying degrees depending on the employee and (in particular) his or her status. A client's confidential information can also be treated as the EZ group company's information for these purposes – it is all part and parcel of the valuable client connection – see Ashcourt Rowan Financial Planning Ltd v Hall [2013] EWHC 1185 (QB) at para 41.
  1. Although there was not much debate or development of the point, the cross-border involvement of an employee in one jurisdiction in the business of another group company would be capable of revealing the confidences and client connection of that other to the employee. That gives a sufficient interest to justify (potentially) the inclusion of other businesses under the construction of the clause that I have considered above.
  1. Thus the groundwork for the second phase of Cox J's analysis is laid. Much greater difficulty arises in the third phase, not merely because that is often the case in restrictive covenant cases, but also because Mrs Tillman has a very much more senior status now and one does not necessarily judge the reasonableness question by her current status and her current engagement with the business as partner as opposed to consultant. There is a dispute as to whether it is appropriate to look back merely to her status as consultant, ignoring her undoubtedly greater contact with the protectable interests as she was promoted, or whether one should anticipate the promotions (and intervening successes in the business). If one looks just at her initial status, there is a dispute as to what her engagement with protectable interests was at the time, though this question overlaps with the first, because it is said that the extent to which she later engaged with confidential and strategic matters, and had engagements with clients as a principal and partner, reflects what it was initially contemplated by both parties that she would do.
  1. I consider first the question of what the parties contemplated, with a sufficient degree of unanimity and certainty, at the date the contract was made, which is what has to be done – Gledhow, Allan Janes (supra). The question is what level of interaction with the protectable interests was it considered she would have. It is against that one has to go on and consider whether a restraint is reasonable. In my view one can start by discounting the level of interaction that she had as a partner. While it would have been hoped that she would gain such a status, it was not sufficiently clear that she would (at least on the evidence that I have). She was new to the business and might not have liked it. As she herself says, she might not have been good at it. The claimant would want to assess her rigorously throughout her initial employment. The level of expectation arising out of this is not sufficiently high to allow one to approach this matter on the footing that the covenant was to be justified against what might happen in terms of partnership. One can test the matter in this way. Suppose that it were clearly the case that her engagement as consultant would not justify the restraint? Is the evidence in this case sufficient to allow expectations of partnership to justify a restraint. In my view plainly not.
  1. That analysis points to an answer to this question. It would be wrong to assume engagement at some future level of employment if that level was not clearly provided for. One therefore has to judge the validity of the covenant by reference to her status as consultant and what was contemplated by both parties as a result of that. That brings in the sort of engagement that would be expected of a consultant but not, without more, any higher level of engagement. However, the analysis becomes more subtle than that. The view that was taken of her prospects may have in fact given her an engagement with the protectable material which is more than might otherwise have been expected. This is a version of what happened in the Allan Janes case. In that case the engagement letter actually held out the prospect of partnership, and in the passage cited the deputy judge held that that impacted on the sort of material that she became privy to and therefore on the validity of the covenant.
  1. In my view that is what happened in the present case. Mrs Tillman has sought to paint a picture in which she was a "normal" (my word, not hers) consultant who had an involvement as a beginner in a limited number of clients, and it was only later, when her status changed, that she became privy to wider ranging confidential material and greater levels of client engagement. The picture painted by the claimant is different, and it is a picture which I think is more likely. It paints a picture which makes her a bit special. The claimant, and Mrs Tillman, had high hopes for her future, and her previous experience meant that she had more client engagement and made much more of a contribution to strategic matters, than would otherwise have been expected. I think that what happened bore that out. I have indicated the care with which I have to approach evidence which Mrs Tillman did not have an opportunity to meet (at least not without an adjournment which no party seemed to want) but evidence produced by Mr Laverge, another EZ group partner who started as a consultant (at the same time as Mrs Tillman, so he knew her then), in the form of emails from 2004 and 2005 shows that right from the start the claimant (and group) was taking advantage of the skills and experience of the defendant and involving her seriously in business strategy matters. Doing the best I can on the basis of the overall material, I also think that she became steeped in client affairs (and thus privy to the client connection) more often and to a deeper extent than might have been expected of another consultant without her large and valuable experience. This is likely to have been anticipated by the parties from the outset because of the contemplations of the parties as to how she would progress. That is how one legitimately takes into account future expectations in this case. One does not assume a promotion and the level of engagement that would accompany a promotion. One looks at the assumptions of the parties and the level of engagement that occurred as a matter of fact in anticipation of that promotion, and (in any event) at the exploitation of the attributes that the claimant (and, I would assume the defendant) thought she had. I think that those expectations produce an anticipated higher level of engagement with protectable matters.
  1. The next question is whether that level of engagement justifies a restraint, and if so whether the length of time is appropriate. This is not an easy assessment on the somewhat generalised evidence (with late examples) that I have been given, but the conclusion that I have reached is that it does. I take into account the nature of the interest that it is desired to protect, and hold that it is of a nature which is capable of justifying a restraint. Next, I take into account the appropriateness of protecting it with a non-compete restraint and find, first, that that is an appropriate mechanism, and second that the lesser restraints provided by the non-dealing, non-solicitation and confidentiality covenants are not sufficient by themselves. While they provide a large measure of protection, they do present policing difficulties both in terms of ascertaining whether there has been a straightforward breach and in terms of more subtle activity when the old employee is in the employment of the new employer. There are many ways in which the information and client connection could be more subtly abused by subconscious reference, indirect guidance, conscious or unconscious suggestions to others in the company, and the like. That is not to say that I assume dishonesty on the part of Mrs Tillman personally. This question has to be dealt with more in the abstract. The direct covenants do not deal with this adequately in the context of the claimant's consultants going off to work for a competitor. In terms of scope, the covenant is limited to working for those who compete with businesses with which the employee has been involved (see above) and that reduces what would arguably be an objectionably worldwide bar to competing to something closely geared to what the departing employee did at the claimant. Six months seems to me to be a reasonable period, principally to allow the substitution of new relationships with the client and for the fading of confidentiality. I do not put much weight on the time it takes to work out an assignment, which was one of the other factors relied on by Mr Laddie; I think that that has little weight in the reasonableness assessment.
  1. Mr Oudkerk made much of the extent to which covenants had (or more particularly had not) been extracted from others, and of the fact that non-compete covenants had not actually been enforced in the past. The evidence was that very many consultants did not have the sort of restraint that the claimant seeks to enforce in this case. Even one of the claimant's deponents (Mr Laverge) did not have one. Nor has any such covenant been enforced against an employee. Mr Oudkerk sought to say that this demonstrated that the clause was not necessary. While this is a point which has to be weighed, I do not think it displaces the finding of reasonableness which I would otherwise make. The claimant's case is that they have extracted the same covenants from all UK-employed covenants, except for one, and the explanation for that exception is not apparent – it might be an accident. Mrs Tillman is therefore not an exception; she complies with the norm in UK employee terms. It is true that those employed in other jurisdictions have not been required to give non-compete covenants to the same effect (though other covenants have been extracted) but that is or may be explicable by the fact that different local laws have different views as to the enforceability of such restraints. Nor is it necessarily weighty that RRA do not extract such covenants, as Mr Oudkerk submits. Again, there may be a local law explanation for this. So far as enforcement is concerned, each case can be dealt with on its merits and the claimant is entitled to make an assessment as to whether litigation is profitable and justified by the effect. In Mrs Tillman's case, bearing in mind her enhanced value in employment terms, it is understandable why the claimant might choose to make an exception and enforce.
  1. One other point fell away. It seemed as though there would be an argument that the clause was too wide in that it prevented any role, however lowly and however far removed from potential exploitation of the protectable interests, in a competitor. However, in the end Mr Oudkerk did not press such an argument. It would in any event be likely to have failed, in my view, but I need say no more about it.

Discretion

  1. The main point raised by the defendant was that if she were restrained from taking up her intended post in New York she would suffer disadvantage arising out of an absence of medical insurance coverage and her personal family circumstances which made insurance important. I did not consider this a good point. She is an experienced businesswoman who has made her own business decisions and was capable of doing so in an informed way. If she is without cover for a while, that is a risk that she took. In any event its force has disappeared as a result of the fact that, pending this decision and the expiry of any permitted restraint, Mrs Tillman will be taken on by RRA as a trainer or coach (outside financial services), and as a result will be able to have the necessary insurance. The claimant has indicated it does not object to this.

Conclusion

  1. The covenant only bites in relation to her present employment plans with RRA if she was involved in business which competed with RRA's business in the last 12 months of her employment. The evidence (albeit briefly stated) is that she was engaged in New York business for the group, and the contrary was not really argued. It follows that the clause would be breached by her employment by RRA, and since it is valid and there are no discretionary reasons for not enforcing it, and injunction should be granted restraining the breach (unless, of course, the defendant offers an undertaking), save that any relief would have to reflect the concession that the claimant makes as to Mrs Tillman being allowed a restricted training or coaching role in RRA.

Published: 26/05/2017 09:57

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