Restrictive covenants can be enforceable even if they cover areas which are “fantastical”

Restrictive covenants are used in employment contracts to restrict employees for a period of time after they leave their employment. The aim is to limit the damage that a departing employee can do to their old employer but there is always a balance to be struck as, by their very nature, they restrict what the employee can do at a time when their employment has already come to an end. For this reason, they have to be very carefully drafted and will generally only be enforced by the courts if they go no further than is reasonably necessary to protect the employer’s legitimate business interests.

There are several different types of covenant which can be used, including those that restrict soliciting and dealing with customers; those that prevent the solicitation of employees; those that restrict interference with suppliers; and, at their most restrictive, those that stop the employee from working for a competing business.

The careful drafting of these clauses is critically important. However, in the recent case of Dr Alan Boydell v NZP Pharma Limited, the Court of Appeal agreed that it was possible to find a clause to be potentially valid if it covered what it needed to but also unintentionally covered areas which were “fantastical” and were not contemplated.

Dr Boydell worked for NZP, a specialist pharmaceutical business. His contract of employment included a non-competition covenant preventing him from working in any capacity for any competing businesses of either NZP or any of its group companies for 12 months.

The High Court granted an interim injunction enforcing the covenant. In doing so, the judge severed certain parts of the clause, including removing the reference to other group companies. This decision was appealed by NZP who argued that the judge could not use severance to make significant changes to the effect of the restraints. The Court of Appeal disagreed and held that if a clause covers what it needs to and what was contemplated but also unintentionally covers areas which are “fantastical” (Home Counties Dairies Ltd v Skilton) then this doesn’t mean that it is not a potentially valid clause. If there are two realistic constructions then the court should rely on the one which would result in a valid clause. This meant that, by severing the references to group companies (which were “fantastical”), the judge had not significantly changed the overall effect of the clause.

This case is helpful to employers who may have concerns regarding the way in which their restrictive covenants are drafted. However, if the covenant had been drafted clearly and narrowly in the first place then there would likely have been no need for litigation at all. Employers should regularly review any restrictive covenants in their employment contracts. They should consider what business interest they are seeking to protect and, with that in mind, make sure that the clauses are clearly drafted, do not cover areas which neither party would expect them to cover, and are constructed as narrowly as possible to provide the necessary protection.

 

Content

1. Restrictive covenants can be enforceable even if they cover areas which are “fantastical”.
2. Statutory redundancy pay – some points that the online calculator doesn’t tell you.
3. Claims for unlawful deductions from wages require there to be an identifiable sum which is due.
4. Primary claim fails but be aware of possible victimisation claims.
5. 3rd Party harassment – under threat?
6. National Minimum Wage and term-time working.
7. The new proposed positive duty to prevent sexual harassment.
8. Online retailer fails in their attempt to strike out claims of worker/employee status by delivery drivers.
9. Resignations in the ‘heat of the moment’.
10. Laughing at an employee who fell over was not found to be harassment. 

 

Statutory redundancy pay – some points that the online calculator doesn’t tell you

The statutory redundancy ready reckoner (www.gov.uk/calculate-your-redundancy-pay) is very useful for employers and employees alike when calculating redundancy pay. There are, however, a few pointers that are worth considering when you are making your calculations:

• The statutory minimum notice period is relevant. This is the minimum amount of notice employees are entitled to receive as a matter of law. The employer generally has to give one week’s notice for each year of employment up to a maximum of 12 weeks after 12 years.
• If you make an employee redundant and pay them in lieu of notice then they can add on what would have been their statutory minimum notice period to the length of service used to calculate their redundancy pay. If this period of time would mean that they would tip over to an additional year of employment then this needs to be taken into account when looking at the redundancy payment due.
• In a similar way, if you are paying in lieu of notice you also need to take account of any birthdays which might take place between the date of redundancy and the date when the employee’s statutory notice entitlement would have expired. The relevant age to input into the redundancy calculator would be the higher age which would have been reached by the end of the statutory minimum notice period.
• If your employees do not have normal working hours so your calculation of a week’s pay is based on a 12-week average, remember that any weeks where the employee wasn’t paid must be discounted and you will need to look back further to put together 12 weeks to average. [back to top] 

 

Claims for unlawful deductions from wages require there to be an identifiable sum which is due

Claims for money due under the employment contract can be brought either as a breach of contract or as unlawful deductions from wages under the Employment Rights Act 1996. Claims for breach of contract in the employment tribunal can only be brought once the employment relationship has come to an end, and are limited in value to £25,000. There are no such limitations on unlawful deductions from wages claims (although the employment tribunal can only look at deductions going back two years).

The limitations of contractual claims before the employment tribunal mean that claims about bonuses, commissions, wages and other sums alleged to be owing under the employment contract are, more often than not, brought as unlawful deductions claims rather than breach of contract ones. For a claim for unlawful deductions from wages to succeed, there must be an identifiable or quantifiable sum which is properly due to the employee.

In the recent case of Ms G Thom v Hobart Real Estate the Employment Appeal Tribunal concluded that there had been no unlawful deduction from wages when an employer failed to make a profit share payment to an employee following the conclusion of a sale. The relevant contractual term stated: “You may receive a minimum 10% of the Company's performance fee (subject to the appropriate deductions) from future investments where you are the designated Asset Manager. The terms and percentage of each performance fee will be negotiated with you and agreed in advance of each project”.

The Company and Ms Thom had not agreed the terms and percentage of the fee. Ms Thom argued that she should, as a minimum, receive 10% as that was what the clause stated but the tribunal found that they did not have jurisdiction to make a judgement as to what the 10% would be of the concept of a performance fee was not agreed and it was outside of the tribunal’s authority cobble one together from consideration of previous actions in order to give Ms Thom 10% of it. There was therefore no identifiable sum which was properly payable. [back to top]

 

Primary claim fails but be aware of possible victimisation claims

A recent Employment Appeal Tribunal case serves as a helpful reminder to employers that, where an employee makes a complaint of discrimination, even if the employer does not believe that the complaint has merit, they can still be found liable for victimisation owing to the way in which they handled the complaint.

In the case of McQueen v The General Optical Council, Mr McQueen was disciplined owing to behaviour which he alleged arose out of his disability. His primary claim (of discrimination arising from a disability under s15 Equality Act 2010) failed following an appeal to the EAT on the basis that his behaviour did not ‘arise from’ his disability at all. However, he did succeed in his claim that he had been victimised. Victimisation claims cover the situation where an employee is treated unfavourably because of raising an issue relating to a protected characteristic. In this case, the employer’s mishandling and “passive failure” to do anything about Mr McQueen’s grievance (which related to a protected characteristic: his disability) caused Mr McQueen distress for over a year.

As a result, the tribunal ordered the General Optical Council to pay compensation - mostly for injury to feelings - of £22,680.  But some of it was for an ‘Acas uplift’, which is awarded if an employer fails to follow the Acas Code of Practice on Disciplinary and Grievance procedures.

It is fairly common for victimisation claims to succeed even where main claims fail (as here), and the ACAS uplift is an easy ‘win’ for claimants – and a punitive increase in liability for employers. Employers can protect themselves by conducting prompt and thorough grievance and disciplinary investigations in all cases, in line with their policies and the ACAS Codes. Remember that there is often the opportunity to remedy defects in the disciplinary or grievance process on appeal if there were problems at the first stage.  [back to top]

 

3rd Party harassment – under threat?

The Telegraph has reported that ministers are getting cold feet about the new proposal to introduce the ability to claim against employers for third-party harassment under the Worker Protection (Amendment of Equality Act 2010) Bill.  Third-party harassment is where an employer is held responsible for the acts of somebody, perhaps a customer or supplier, who is not actually their own employee.

There is concern about the potential financial cost to employers should this proposal become law.

Third-party harassment has a long history in an employment context. The case of Burton v De Vere Hotels was the historic high-point – where female waiting staff were successful in claiming racial harassment against their employer because of the on-stage behaviour and language of Bernard Manning, which the hotel putting on the event did nothing to stop. However, there have always been problems with the issue of control: how much control can an employer realistically exercise over third parties who may attend their premises or interact with their employees?

Between 2008 and 2013 there was a limited right to claim against the employer for third-party harassment based on a ‘3 strikes’ rule: employees had a right to claim if they suffered a third incident of harassment where the employer already knew of two previous incidents.

Under the proposal as it currently stands, liability for harassment by third parties will arise without there needing to be a prior incident, unless the employer can show they took all reasonable steps to prevent the harassment from taking place. The test will be similar to that which exists for straightforward harassment by fellow employees. However, it remains to be seen how the concept of ‘reasonable steps’ will be treated given the inherent lower level of control that employers have over persons who are not their employees.

Regardless of what the future holds for this element of the Bill, there are obviously good employment relations reasons behind not wanting your employees to be exposed to harassment from third parties in the workplace. A poor workplace culture impacts employee satisfaction and engagement, leading to high staff attrition rates and low productivity. There is also the related health and safety obligation to provide a safe place of work and the implied term of mutual trust and confidence which must be borne in mind in all of your dealings with your staff.  [back to top]

 

National Minimum Wage and term-time working

A recent Employment Appeal Tribunal case looked at how national minimum wage should be looked at where the employee worked term-time only.

In Lloyd v Elmhurst School Limited Ms Lloyd was engaged as a learning support assistant at a private school. She worked 21 hours per week during term time (36 weeks per year). Her contract of employment included a clause which stated that she was “entitled to the usual school holidays with pay”. She was paid in twelve monthly instalments across the year. She brought a claim of unlawful deduction from wages alleging that she had been paid less than the national minimum wage. She argued that the clause in her contract which stated that she was entitled to the usual school holidays with pay meant that, in calculating her hourly pay, her salary should be averaged over 52 weeks of the year (as all the weeks she didn’t work were “usual school holidays”).

Her employer argued the tribunal should look at the hours the employee actually worked each week (21 hours), how many weeks she worked those hours (36 weeks), add on statutory holiday entitlement (agreed on appeal to be 5.6 weeks) and take an average of pay over this period (a total of 41.6 weeks) to establish if her pay was compliant with the national minimum wage. Applying this analysis her pay was above national minimum rates but applying the employee’s analysis, it was not.

The tribunal rejected her claim and agreed with the employer’s analysis. The EAT overturned the decision and said that it does not matter when ‘in fact’ the employee was working for national minimum wage calculations. If the wording of the contract of employment indicates that absences will be ‘fully paid’ then these ‘fully paid’ absence periods should also be taken into account when working out whether an employee’s average pay is above national minimum wage requirements.

This case, although specific to its own facts, is a useful reminder to those who engage or employ workers on atypical working patterns such as term-time working. Standard contractual wording may need to be amended or removed to avoid unintended consequences. If an employee works term-time only and is paid across twelve months of the year the contract should make it clear that their pay includes their statutory holiday entitlement and that, although their pay is averaged across the year, they are not entitled to pay during school holidays. [back to top]

 

The new proposed positive duty to prevent sexual harassment

The current law on harassment, and in particular sexual harassment, states that employers will be liable if an employee suffers sexual harassment in the workplace unless they can show that they took all reasonable steps to prevent the harassment from occurring. The reasonable steps defence is a difficult one to navigate. Employers are told to focus on keeping training up-to-date and creating a workplace culture where harassment of any form is not tolerated. However, there are not many case law examples of it being successfully argued. In the 2021 case of Allay (UK) Limited v Mr S Gehlan the Employment Appeal Tribunal found that the fact that the employer had provided equal opportunities training to the offending employee around 20 months prior to the harassment occurring did not constitute ‘reasonable steps’. The training was regarded as ‘stale’. The burden on the employer to keep on top of training and workplace culture in order to avail itself of this defence is a heavy one.

The consequences of failing to prevent harassment or to demonstrate reasonable steps have been taken to prevent it are set to become more significant under changes proposed under the Worker Protection (Amendment of Equality Act 2010) Bill. The Bill, if passed, will place a new positive duty to prevent sexual harassment on employers. This new duty will be enforceable by an Employment Tribunal where it has first upheld a claim for sexual harassment.

A tribunal will also have the discretion to award a ‘compensation uplift’ by increasing any compensation it awards for sexual harassment by up to 25% where there has been a breach of the employer's duty. These changes, if they become law, will up the stakes on sexual harassment claims and should focus the minds of employers on positive workplace culture, training and preventative measures. [back to top] 

 

Online retailer fails in their attempt to strike out claims of worker/employee status by delivery drivers

The Employment Tribunal has recently refused an application by an online retailer (A) to strike out claims by delivery drivers claiming worker or employee status against them. The delivery drivers in question were engaged under a written contract with a delivery services partner (B) which stated that they were self-employed. The relevant partner then contracted with A to provide delivery services and provided the drivers to carry out those services.

The delivery drivers brought claims against both B and A claiming that they should be considered as workers or employees. A asked for these claims to be struck-out against them on the basis that they had little or no prospect of success. They pointed to the fact that the drivers had a contractual relationship with B so there was no necessity to imply any contract between A and the drivers. A relied on the traditional authority of James v Greenwich Borough Council where the House of Lords held that contracts would only be implied in a tri-partite arrangement where it was necessary.

The tribunal, however, concluded that they now had to view this case in light of the Supreme Court’s judgment in Uber BV and others v Aslam and others. This meant that there needed to be a full consideration of whether the statutory definition of worker (or, indeed, employee) was met in terms of the relationship between A and the delivery drivers. You could not start with a written agreement and say that, as there was one between the drivers and B, this meant that there was no necessity for the relationship of worker to exist between the drivers and A. The tribunal placed emphasis on the fact that whether someone is a worker or not is a matter of statutory interpretation and this should be considered in light of all of the facts (i.e. at a full hearing) and with the effect of the statutory purpose of protecting vulnerable workers in mind.

The judgment of the tribunal is not surprising given the wider issues raised by A’s litigation. The Uber case involved a situation where there was no express contractual relationship between the parties. Online retailer A, has a set up where a web of contractual agreements has been put in place, in part, in an attempt to avoid the individual drivers holding the status of worker or employee with any of the other entities. The result of the substantive hearing of these issues could have widespread implications for all those in the gig economy who operate under a similar model. [back to top]

 

Resignations in the ‘heat of the moment’

In the recent case of Mrs Cope v Razzle Dazzle Costumes Ltd, Mrs Cope, following a tense discussion at work, said “I’m done” and walked out of the building. She later submitted a sick note. Her employer treated her statement as a resignation and treated her as having resigned from her employment. She brought a claim of unfair dismissal.

The tribunal held that she had not resigned and found in her favour. They looked at the context in which Mrs Cope had said “I’m done” (a tense meeting), her anxious state and the fact that her actions after saying these words (in submitting a sick note) were not consistent with having resigned. This case highlights the care that must be taken by employers before treating an employee as having resigned. Some pointers include:

• Take care to look at the surrounding circumstances, any ambiguity with the words used and whether it could be regarded as being ‘in the heat of the moment’.
• If you have concerns that the employee’s possible resignation was made in a temper or in the heat of the moment, then the law says you should give the employee a cooling-off period in which to consider their decision before accepting it. This need only be a few days maximum.
• If the resignation is clear and unambiguous and has not been prompted by an emotive or highly-charged situation then you are able to accept it immediately. Once you have accepted it the resignation will stand unless you agree to its retraction.  [back to top]

 

Laughing at an employee who fell over was not found to be harassment

And finally, the law relating to harassment is a minefield for employers to navigate. The fact that the law focuses on the effect of the conduct, not the nature of the conduct, makes it tricky. However, some comfort is found in the recent Employment tribunal decision in Perera v Stonegate Pub Company Ltd where it was held that an employer who laughed at an employee who fell over at work had not harassed them on racial or religious grounds. 

The Judge said that the "slapstick element" of someone falling over was likely to cause laughter. To be regarded as harassment it had to have the purpose or effect of violating the employee’s dignity or creating an intimidating, hostile, degrading, humiliating or offensive environment for the employee. Applying this test the Judge found that "The conduct itself, objectively, came nowhere near having the proscribed effect, and [the employee’s] view of matters was unreasonable." He found that, although the employee’s perception had to be taken into account, the test was not satisfied merely because the employee thought it was. [back to top]