Restraint of Trade and Severance after Egon Zehnder


The Supreme Court has handed down its much anticipated judgment in Egon Zehnder v. Tillman, the first domestic employment restraint of trade case to reach the most senior court in a century. The Court allowed Egon Zehnder’s appeal from the Court of Appeal thereby rendering the non-competition covenant enforceable. The Court’s key conclusions are:

  1. The restraint of trade doctrine is engaged by a prohibition on holding shares.
  2. In restrictive covenants, the phrase “interested in” generally refers to or includes holding shares.
  3. The appropriate test for severance is not that developed in Attwood v. Lamont, which has been overruled.  The new test for severance is now whether the objectionable words can be deleted without generating any major change in the overall effect of all the post-employment restraints in the contract.

In this case, the words “or interested” were capable of severance and so the non-competition clause was enforceable.

James Laddie QC, of Matrix, instructed by Patrick Brodie of RPC, was lead counsel for the successful appellant.