Court of Appeal Enforces 12-Month Non-Compete

Why the Case Matters

In Boydell v NZP Ltd and others, the Court of Appeal applied the doctrine of severance—deleting certain parts of a restrictive covenant—to uphold a 12-month non-competition covenant. This follows the three-stage test established by the Supreme Court in Tillman v Egon Zehnder Ltd [2019]:

• Can the unenforceable parts of the clause be removed without modifying the remaining wording?
• Can the removal occur without significantly changing the overall effect?
• Is there adequate consideration for the remaining terms?

Although this decision takes a broad approach to severance, employers should not assume severance is always available. Careful drafting of post-termination restrictions is essential. They must be tailored to the specific circumstances and no wider than necessary to protect the employer’s legitimate business interests.

Relevant Facts

NZP specialises in the development and production of bile acid derivatives for pharmaceutical companies. Dr Boydell, Head of Commercial Specialty Products, resigned and intended to join a main competitor to head up their “bile acid business.”

His employment contract included a non-compete covenant prohibiting him for 12 months post-termination from:

• Engaging in any activity benefiting a third party carrying out competing business;
• Collecting, processing, or converting bile for pharmaceutical use;
• Activities related to the supply chain of bile-derived products.

The High Court granted injunctive relief but severed references to group companies and supply-chain activities. Dr Boydell appealed, arguing the clause went beyond what was reasonably necessary—preventing him from working at companies like Boots or Superdrug.

Decision

The Court of Appeal rejected the appeal, holding that:

• Dr Boydell’s construction—barring work at general pharmaceutical companies—was a “fantastical, extravagant, improbable” interpretation not within the parties’ contemplation. The clause clearly targeted NZP’s specialist activities.
• It was not plain and obvious that the clause was incapable of severance. The High Court was entitled to sever the group company wording at the interim stage.
• After severance, the clause remained enforceable. Given NZP’s highly specialised business and Dr Boydell’s move to a direct competitor, it was reasonable to maintain the restraint.

Why We Should Care

The government has announced plans to reform non-compete clauses, limiting them to three months. If enacted, lengthy restrictions like this one would no longer be upheld. Regardless of future reforms, employers must:

• Draft restrictive covenants carefully at inception;
• Tailor restrictions to the specific business interest and employee seniority;
• Ensure any post-termination restriction is reasonable and no wider than necessary.

Although NZP successfully obtained injunctive relief, this case underscores the importance of precision in drafting and the potential costs of relying on severance arguments alone.

Article by Taylor Wessing