It is sometimes possible to persuade a court to enforce a restriction that is otherwise unreasonably wide by severing, or effectively deleting, a specific aspect of the restriction. The risks and opportunities this creates need to be considered by employers when drafting as well as enforcing restrictions.

In Boydell v NZP Ltd the Court of Appeal considered the enforceability of a 12 month non-compete post-termination restriction. Part of the clause had previously been severed by the High Court when granting an injunction. 

Legal position – modifying an unenforceable covenant 

First, a brief reminder of the legal test set by the Supreme Court (known as the Tillman principles) in relation to deleting the offending parts of a post-termination restriction so as to make it enforceable:

1. Deletion / strike through only – the unenforceable parts of the clause must be capable of being removed without the need to add or modify the remaining wording; and
2. Unchanged effect – there should be no major change in the overall effect of the restriction after the removal of the offending words, i.e. its effect should remain similar.

The facts in Boydell v NZP Ltd and the High Court judgment 

Dr Boydell worked as Head of Commercial (Specialty Products) for NZP Ltd (NZP), a business which developed, produced and sold bile acid derivatives to pharmaceutical companies. The NZP business was one part of a wider group of companies. 

In his role at NZP, Dr Boydell had responsibility for the global sales and marketing of bile derived products for the Group. Therefore, unsurprisingly, he was subject to a number of post-termination restrictions. These included a 12 month non-compete clause which sought to prevent him being involved in any activities for the benefit of any third party that carried out any business which would compete with the business of NZP or of any other company in the Group – which went beyond acid bile products.

Dr Boydell resigned from NZP and intended to take up employment with one of their main competitors in this niche area of the pharmaceutical industry. In response, NZP applied for an injunction to enforce the non-compete clause against Dr Boydell. Dr Boydell argued that the scope of the non-compete clause was too wide to be enforceable as it applied to the business of the whole group. However, the High Court considered that part of the clause (including the reference to group companies) could be severed to reduce its scope and make it enforceable. On this basis, the interim injunction was granted and Dr Boydell was ordered to cease all activities in breach of his (reduced) non-compete clause. 

The Appeal

Points of appeal

In his appeal, Dr Boydell argued that:

1. The non-compete clause as drafted was too wide in principle. It would not allow Dr Boydell to work in any pharmaceutical company that produced general (rather than specialist) pharmaceutical products such as Boots or Superdrug. This went beyond what was reasonably necessary to protect NZP’s legitimate interests.
2. Contrary to the legal test in Tillman (above), the totality of the severances meant that the Judge had “impermissibly re-written the whole contract”. Severance of the group company wording from the clause significantly changed the nature of the restraint.
3. The clause, even after severance, was still too wide in scope to be enforceable. 

Court of Appeal

The Court of Appeal rejected Dr Boydell's appeal. 

It found that Dr Boydell's argument that the non-compete clause prevented him from working for general pharmaceutical companies such as Boots or Superdrug was a "fantastical, extravagant, improbable or unlikely consequence" that was not within the parties’ contemplation at the time they entered into the contract. Dr Boydell's construction could be ignored when there was another valid construction which would render the clause enforceable in all ordinary circumstances. The Court of Appeal held that the clause was clearly directed towards the specialist activities of NZP.

Having reached this conclusion on the broad interpretation, the Court of Appeal decided that it was not plain and obvious that the clause was incapable of severance.  In light of this, the Court of Appeal upheld the High Court’s decision to severe the "group company" wording. That wording could be removed without re-writing the contract.

The Court also determined that, in the circumstances, the scope of the remaining clause was not still too wide as argued by Dr Boydell. It noted that NZP is a specialised business and if Dr Boydell did move to a competitor, it may be unrealistic to think that he could be "insulated from activities which compete with those of NZP". The Court went on to say that if NZP were a larger public company operating across different business fields, the situation would likely be different as such a wide non-compete may be difficult to justify in that scenario. In short, determining the scope and enforceability of such clause is a highly fact sensitive exercise. 

The Government consultation on non-compete clauses

Back in 2020, the Government launched a consultation on non-complete clauses to consider:

• Whether use of non-compete clauses post-termination should be prohibited and, if not, whether they should be restricted in some way to help employees to obtain new work and start their own businesses;
• Views on a proposal that there should be a requirement for employers to pay employees for the duration of the non-compete clause, post-termination;
• A possible requirement that before entering into an employment contract with an employee, an employer would need to disclose details of a non-compete clause in writing; and
• A proposed statutory restriction on the maximum duration of a non-compete clause.

The consultation closed on 26 February 2021 and we are still awaiting publication of the response. Similar proposals are being considered in the US with the Federal Trade Commission proposing a sweeping ban on businesses imposing non-compete clauses. 

The Court of Appeal decision is a reminder of the principles in Tillman and how they should be applied, considering the facts and circumstances of the employment against the scope of the non-compete clause. Employers will want to strike the right balance between business protection and not being so wide that a restriction cannot be enforced. Severing terms can allow a second chance to achieve that balance if the covenant is suitably drafted at the outset.