Courts in England Interpret Non-Compete Clauses Using Similar Analysis to U.S. Courts

An interesting recent employment law case in the United Kingdom illustrates why it is crucial for businesses to carefully draft non-compete agreements. In England as in the United States former employees can use overbroad wording to invalidate the entire covenant and circumvent otherwise valid provisions.

Mary-Caroline T. was an executive search agent and partner at Egon Zehnder Ltd. in the U.K., eventually rising to become co-global head of the financial services group. Her employment agreement provided that she not be “engaged, concerned with or interested in” a competing business of a similar nature for six months following separation from the company. The restriction was not limited geographically.

Mary-Caroline resigned in January 2017 and shortly thereafter informed Egon Zehnder that she intended to take a position with a New York-based executive search firm beginning in May, less than four months after departing the company. Since this was a breach of her noncompete clause, Egon Zehnder sought an injunction preventing her from doing so.

Her attorneys argued that the wording of the clause, particularly “concerned with or interested in,” prohibited her from having even a small investment interest in a competing business, even though such an interest had been allowed while she was employed. There was no express exception for this activity in the contract. They argued, therefore, that this along with lack of a geographic limitation rendered the contract unreasonable to protect Egon’s business interests and unenforceable.

However, the U.K. High Court (similar to a district court in the U.S.), granted Egon its injunction after finding that the language in the clause would not prevent Mary-Caroline from purchasing a minor interest in a competing concern and the noncompete restrictions were otherwise reasonable.

Mary-Caroline appealed the decision to the Court of Appeal, which reversed the injunction on July 21 just days before it was set to expire. The court held that the “theoretical width” of the noncompete clause made it impermissibly broad, thus invalidating the entire restrictive covenant. The court also declined Egon’s request to “blue-pencil” the clause to omit the disputed language, refusing to rewrite or sever the clause to save the contract. The court indicated that if not for the absence of an exception in the clause to allow minority shareholding, the remainder of the restrictions would be reasonable. It was a simple case of deficient drafting.

The end result was that solely because of this faulty language, the entire noncompete agreement was invalidated even as to Mary-Caroline’s employment with a competing company. Businesses are well advised to draft non-compete covenants to clearly except minority shareholding in a competing concern from post-employment restrictions on a former employee, or otherwise to steer clear from including language such as “concerned with or interested in.” They cannot expect a court to later fix their poor drafting.

Our Illinois non-compete agreement attorneys have defended high-level executives in a covenant not to compete and trade secret lawsuits. A case in which our firm defended a former Motorola executive was covered in Crain’s Chicago Business. You can view that article by clicking here.

Lubin Austermuehle a firm of Chicago business dispute lawyers handles litigation over non-compete clauses for individuals and businesses of all sizes, including small or closely held businesses for whom competition from an ex-employee can be a serious threat. Our Chicago business lawyers with offices near Highland Park and Deerfield have substantial experience in restrictive covenant and breach of contract cases, and we are proud of our record of strong results. We have successfully represented a number of doctors in non-compete, partnership, and other business disputes.  We understand the complexities of physician partnership and non-compete agreements.

Lubin Austermuehle a Chicago business litigation law firm represents both plaintiffs and defendants in such cases, and can also help stop litigation before it starts by reviewing contracts to look for covenants and clauses that could create problems later. Our firm has also handled many shareholders and LLC disputes between owners of closely held corporations, and LLCs.

Based in Oakbrook Terrace and downtown Chicago, our Wheaton and Geneva non-compete agreement and business dispute lawyers take cases from Highland Park and Deerfield and many other cities throughout Illinois, as well as in Indiana, Wisconsin and the entire United States. To learn more or set up a free consultation, please contact one of our Chicago business dispute lawyers through the Internet or call toll-free at 630-333-0333 today.

Lubin Austermuehle’s Oak Brook, Naperville and Waukegan litigation attorneys have more than three decades of experience helping clients unravel the complexities of Illinois and out-of-state non-compete and trade secret theft laws. Our Chicago business dispute attorneys also represent individuals, family businesses and enterprises of all sizes in a variety of legal disputes, including disputes among partners, shareholders, and LLC members as well as lawsuits between businesses and consumer rights, auto fraud, and wage claim individual and class action cases. In every case, our goal is to resolve disputes as quickly and successfully as possible, helping business clients protect their investments and get back to business as usual. From offices in Oak Brook, near Winnetka, Hinsdale and Lake Forest, we serve clients throughout Illinois and the Midwest.

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