Most SME employment contracts contain a non-compete clause. Very few of them would survive a serious legal challenge, and the reason is almost always the same: the clause was copied from a template years ago and nobody has looked at it since.
The starting position in English law is that any clause restricting what an employee can do after they leave is void as an unreasonable restraint of trade, unless the employer can show two things: a genuine, legitimate business interest that needs protecting, and a restriction that goes no wider than reasonably necessary to protect it. The burden of proving both of those sits with the employer, not the departing employee.
The leading case on how far courts will go to rescue a badly drafted clause is Tillman v Egon Zehnder Ltd, decided by the Supreme Court in 2019. Ms Tillman was a senior executive whose contract included a standard non-compete clause preventing her from being "engaged, concerned or interested" in a competing business for six months after leaving. The problem was the word "interested". As drafted, it would have stopped her holding even a single share in a publicly listed competitor, which had nothing to do with protecting the company's legitimate interests and everything to do with the clause being drafted too widely. The Supreme Court agreed the clause was too broad as written, but went on to hold that the offending words "or interested" could be removed without changing the rest of the restriction, a process known as the "blue pencil" test, and that what remained was enforceable.
That outcome sounds like good news for employers, and to an extent it is: it lowered the bar for courts to sever bad wording rather than throw out an entire covenant. But it's easy to misread the lesson. Severance only works where the offending words can be cut cleanly, without needing to add or rewrite anything, where what's left is still supported by adequate consideration, and where removing it doesn't fundamentally change the character of the restriction. Most badly drafted covenants don't fail on one throwaway word like Tillman's did. They fail because the whole restriction is too wide in scope, too long in duration, or too vague about what interest it's actually protecting, and none of that can be blue-pencilled away.
The practical lesson for SME owners is this: a non-compete clause is only as good as the thinking that went into it when it was drafted. If you can't clearly articulate what legitimate interest a clause protects, whether that's client relationships, confidential information or specific technical know-how, and why the duration and scope are no wider than necessary to protect it, you're relying on a piece of paper that a court is likely to strike down the moment it's tested. And the moment it gets tested is exactly when you can least afford it to fail: after a key employee has already walked out the door to a competitor with your client list in their head.
If you haven't reviewed your restrictive covenants in the last few years, or you're not confident they'd survive a challenge, get them looked at before you need them, not after. Neathouse Partners reviews and redrafts restrictive covenants for SMEs on a fixed-fee basis. Call 0333 041 1094 or visit neathousepartners.com.
General Guidance Only. Not Legal Advice.
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