Key takeaways 

• Whether post-termination restrictions are enforceable will depend on the circumstances of each case.  Non-compete restrictions are subject to particular scrutiny by the courts, since they may affect an individual's ability to work in a job which uses their experience and skills for a significant period.  
• This case, where a 12 month non-compete covenant was upheld, is therefore relatively unusual, but key factors included the individual's senior role and the highly specialised nature of the business.  Where the circumstances make it reasonably necessary, a court will allow contractual limits on a former employee's ability to compete.  
• Of interest was the finding that it was possible to sever (delete) some wording from the clause (in this case, reference to protection of group companies), and to enforce the remaining section.  Courts are not permitted to add additional wording to restrictions, and can only sever wording that does not affect the meaning of the clause as originally intended.  
• Any employer wishing to include post-termination restrictions in employees' contracts should take particular care to ensure that the wording goes no further than necessary to protect the employer's business and the nature of the relevant employee's role, and that the clause is drafted in a way that allows for severance, and therefore a chance for the clause to be ‘saved’ if the severable part goes too far.  

For further information on how this affects your business, please get in touch with your usual Baker McKenzie contact.

In more detail

NZP Ltd (NZP) develops and produces bile acid derivatives, which are sold to pharmaceutical companies for use in their products.  It is a highly specialised business.  Dr Boydell worked as the head of global sales and marketing of these products for the group of which NZP was a part.  

His employment contract contained a 12 month non-compete covenant which prevented him being involved in any activity, including the collection, processing or conversion of bile for pharmaceutical use, and any activities related to the supply chain, for the benefit of any third party that carried out any business competing with NZP, any affliates, or any other company in its group. The clause then listed a number of companies which were to be considered as competitors.

He resigned to work for NZP's main competitor and NZP claimed breach of contract and sought an injunction to prevent him starting work before the expiration of his post-termination restrictions.   

In Tillman v Egon Zehnder (2019), the Supreme Court held that it was possible to sever wording from a non-compete covenant which made it unreasonably wide (and therefore unenforceable), as long as doing so would not modify the remainder of the restriction, and it would not generate a major change in the overall effect of the clause.  The High Court considered Tillman and held that some parts of the restriction could be severed, including the reference to affiliates and group companies, and granted NZP an injunction.  

Dr Boydell appealed to the Court of Appeal. He argued that, as originally drafted, the clause prevented him from being involved in any capacity with any third party which competed with NZP's business, whether or not it was I the same field of activity as when he was working for NZP.  This was unreasonably wide and would, he argued, stop him working at any company which produced general pharmaceutical products such as nasal sprays.  The restriction would be so wide as to prevent him working for large household names like Boots or Superdrug, and therefore went further than was reasonably necessary to protect NZP's legitimate interests to protect its business. 

The Court of Appeal dismissed the appeal.  

In Home Counties Dairies v Skelton (1970), the Court of Appeal had held that a fantastical, extravagant, improbable or unlikely consequence that was not within the parties' contemplation at the time the contract was signed would not affect the clause's validity, as long as the covenant was valid in all ordinary circumstances.  Dr Boydell's interpretation of the original clause, such that it would prevent him from working for companies such as Boots or Superdrug, fell within this principle and should therefore be ignored.  The clause was directed to cover the specialist activities of NZP.  Therefore, it was not plain and obvious that the clause was incapable of severance.  The High Court was entitled to sever the group company wording from the clause.
The clause was wide but, once the group company wording had been removed, it was not too wide to be enforceable.  The Court of Appeal noted that whether post-termination restrictions are enforceable is highly fact-sensitive in each case.  In Dr Boydell's situation - unlike, say, a large public company with multiple areas of activity - his employer had a highly specialised business and it is less obviously difficult to justify a non-compete covenant.