Gordons Employment Update - 26 July 2019

Restrictive Covenants – Restraint of Trade Clauses

The Supreme Court recently heard the case of Tillman v Egon Zehnder Ltd. The first case of its kind to come before the Supreme Court in a hundred years, it considered the validity and construction of non-compete restrictive covenants. The decision has wide ranging repercussions as to how the Courts will deal with restrictive covenants from now on.

Facts

The Claimant, Caroline Tillman, worked for Egon Zehnder for 13 years. She resigned from her senior role in January 2017. Her contract contained a range of restrictive covenants, including a non-competition cause which prevented her from being directly or indirectly engaged or concerned or interested in any business carried on in competition of Egon Zehnder for a period of six months.

The Claimant contended that the clause was unenforceable as the phrase ‘interested in’ amounted to a unreasonable restraint on trade as it would prevent her from holding shares in a competing business.

Law

When considering if a restraint on trade clause will be enforceable, it is for the employer to establish that the restriction is reasonably necessary in the protection of their business. The longstanding Court of Appeal case law provided that an unreasonable clause would be held to be unenforceable in its entirety. This has now been altered by the Supreme Court.

Decision and comment

The Supreme Court clarified how unreasonable aspects of clauses should be dealt with;

• Can the clause be construed using a realistically alternative interpretation, so as to be valid? In this case it was held that the phrase ‘interested in’ could not be construed so as not to include shareholding.
• Can the phase which results in the clause being unreasonable be severed? Severance is permitted where:
  1. Removal of the words results in no need to add or modify what is left behind
  2. Removal should not generate any major change in the overall effect of all the post termination restraints in the contract.

In this case it was held that the words ‘interested in’ could be severed and the rest of the clause be preserved.

This case reinforces that all restrictive covenant clauses should be specifically tailored to the business and to the individual in question.

Whilst the Supreme Court’s approach to severance should be of comfort to employers, the Supreme Court also noted that the severance of unreasonable parts of the post-employment restrictions was akin to clearing up “legal litter”. It went on to say that such a process should not cast an unfair burden on the employee and there could be cost consequences for the employer in the adjudication of any such dispute.

If you need further advice on how this case may impact on your employees’ restrictive covenants, please get in touch with a member of the employment team.

Backdated Holiday Pay Claims

The Court of Appeal in Northern Ireland recently heard the case of Chief Constable of the PSNI & Northern Ireland Policing Board v Agnew & Others which questioned whether the law in respect of a three month “gap” between deductions breaking the “series” of unlawful deductions was correct.

Law

Where an employee either works regular overtime or is paid regular commission, they are entitled to be paid their holiday pay at their average rate of pay.  Where an employee is entitled to be paid holiday pay at their average rate of pay but instead is paid for holidays at their at basic pay only, they can bring a claim in the Employment Tribunal for unlawful deductions from wages (to claim back the difference between the holiday pay they were paid at their basic pay and what they should have been paid at their average rate of pay).  In such circumstances an Employment Tribunal can look to award an employee arrears of holiday pay going back up to two years.  However, where an employee in the two year period prior to the date of the claim has been paid correctly for more than three months (i.e. where they have not taken or been paid for any holidays), this breaks the “series” of deductions.  This therefore limits the amount of compensation that the employee can claim (so the employee cannot claim back any further than the three month gap).

Facts

Agnew concerned claims by over 3000 police officers and other civilian employees for underpayment of holiday pay, having only been paid at their basic rate, rather than the correct average. In considering whether gaps between holidays within a leave year where an employee was correctly paid would be sufficient to break the series, it was held that such a position was wrong as it could lead to “arbitrary and unfair” results for employees bringing claims. Therefore a three month period where an employee was paid correctly would not break the “series” of unlawful deductions.

Decision and comment

This is a case that was heard in Northern Ireland, so whilst it is not formally binding upon Employment Tribunals in England and Wales, we consider that it is likely to be the case when the three month “gap” is formally challenged in the higher courts in England and Wales, that this will be overturned for the same reasons.

Despite the legal position regarding ‘average’ holiday pay for those employees who work regular overtime / are paid regular commission being good law for some time now, we are still seeing a number of employers who are still paying holiday pay at a basic rate.  Once an employer makes the change to how they calculate their holiday pay and once more than three months have passed where the employee has been paid correctly and the employee has not taken the necessary steps to commence proceedings, they will be out of time for bringing a claim  in the Employment Tribunal for backdated holiday pay. If you need further advice on making changes as to how your business pays holiday pay, please get in touch with a member of the employment team.

Social Media – Harassment and Employer’s Liability

In Forbes v LHR Airport Limited the Employment Appeal Tribunal considered if posting an offensive image on Facebook was done in the course of employment.

Facts

Mr Forbes was employed as a security officer. A colleague of his, Ms Stevens, posted an offensive image of a golliwog on Facebook alongside a caption “Let’s see how far he can travel before Facebook takes him off”. This image was shared only with Ms Stevens’ Facebook friends. Mr Forbes was not Facebook friends with Ms Stevens, but was shown the post by another colleague.

Mr Forbes raised a grievance which was upheld and Ms Stevens was disciplined, receiving a final written warning.

When rota’ed to work with Ms Stevens, Mr Forbes raised issue with this and was moved to work in another location without further explanation. He then brought claims of harassment, victimisation and discrimination against LHR.

Law

Employers can be held vicariously liable for the actions of their employees which breach the Equality Act 2010 (including harassment) provided such actions were carried out in the course of that person’s employment.

Decision and Comment

On first hearing in the Employment Tribunal, Mr Forbes’ complaints were dismissed. It was held that Ms Stevens’ act of posting the image on her personal Facebook page was not one done in the course of her employment and therefore was not an act for which LHR could be liable for. LHR had also taken all reasonable steps to prevent discriminatory acts.

In upholding the first instance decision and finding there was no liability for LHR on this occasion, the EAT made clear that assessing if actions are in the course of employment or not, it will be a question of fact having regard to all the circumstances.

No specific rules regarding social media were provided by the EAT, but it made clear that relevant factors included whether the post was in or out of work and if there was a sufficient connection between work and the conduct.

Whist each case of this nature will be highly fact specific, a clear disciplinary policy and an unambiguous policy on the use of social media will go a long way to help employers address these issues when they first arise before recourse from the Tribunal is sought.

If you require any further information on the above developments please do not hesitate to get in contact with a member of the Employment Team.