Newsletter July 2019


There is a clear headline development this month, namely the decision of the Supreme Court in the Egon Zehnder case, concerning the interpretation of restrictive covenants.

The employer-unfriendly and widely criticised (including by me) decision of the Court of Appeal has been reversed. This will increase the potential for restrictions to be enforced and will help employers beat off some nit-picky arguments from the solicitors acting for former employees who are playing offside.

Darryl Evans
T: +44 (0)7771 725341

That Egon Zehnder decision: Supreme Court affirms blue pencil test

The “blue pencil test” is a well-established legal principle used in the courts when determining whether to enforce restrictive covenants against, among others, former employees who engage in competitive activities after leaving. Many employers seek to stop this by including restrictions in the employment contract. Any such restriction is, in principle, unenforceable as it acts in restraint of trade (i.e. restricts normal business competition). However, set against that is the fact that entrepreneurialism may be stifled if business assets cannot be protected. Accordingly, a court will uphold a restriction it determines to be reasonable in terms of scope and duration to protect a legitimate business interest of the company imposing it.

This often leads to detailed legal arguments about the precise meaning and drafting of a restriction and about whether what the wording actually prohibits is excessive. That is why the business imposing the clause needs to take care with the drafting – if it is too wide the restriction will fail and the court will not step in and re-write a clause to save it.

Except, there is the “blue pencil test”. That allows the court to strike out (but not otherwise amend) wording and assess the reasonableness of the clause as if those struck out words were not there. It can apply a ‘blue pencil’ to the clause. In this way, an otherwise unenforceable restriction may be saved.

In this case a senior employee of Egon Zehnder, Ms Tillman, agreed not to "directly or indirectly engage or be concerned or interested in" any competing business for six months after the termination of her employment. That restriction was considered by the Court of Appeal, correctly according to the Supreme Court, to be too wide because the words "interested in" precluded even a minor shareholding in a competing business. (It should be noted that many restrictions have an express exception for such minority interests, but that was not the case here.)

However, the Court of Appeal had been wrong to conclude that the offending words could not be severed from the remaining, reasonable parts of the covenant. As long as the unenforceable provision could be removed without it being necessary to add to or modify the remaining wording, and provided the removal of the offending provision did not result in any major change in the overall effect of the restraints in the contract, the blue pencil could be used.

Order restored. (Egon Zehnder Ltd v Tillman [2019] UKSC 32.)

Covert recordings

Next, a case I really have been waiting for. The tendency for employees (it is usually them rather than the employer) to make covert recordings of disciplinary or performance meetings or hearings, and sometimes other meetings, is now quite prevalent. That is mainly because it is now so easy to do on a smartphone.

Ms Stockman was one such employee. In the course of her successful unfair dismissal claim, she disclosed a covert recording she had made during her employment. The fact that the recording should be disclosed and may be used as evidence is not in issue or controversial. The interesting issues arose when it came to determining her financial award.

Phoenix, her employer, contended that her compensation for unfair dismissal should be reduced on 'just and equitable' grounds and under the Polkey principle, to reflect her pre-dismissal conduct in making a covert recording. Phoenix said that there was no pressing justification for doing this, it was misconduct and she would have been dismissed – so a 100% reduction please. The argument made little headway in the Tribunal – only a reduction of 10% was applied - so Phoenix appealed.

The Employment Appeals Tribunal (EAT) recognised that in some circumstances making a covert recording might be misconduct. It acknowledged the good employment practice for an employee or employer to say if there is any intention to record a meeting, and regarded it generally as misconduct not to do so, except in the most pressing of circumstances.

However, context mattered. The purpose for making a covert recording may vary from attempting to entrap someone to guarding against misrepresentation, with legitimate reasons such as ensuring accurate legal advice. The nature of what is recorded can also be relevant, varying from a meeting where a record is normally kept, to highly confidential or sensitive information relating to the business or other people. In addition, an employee might have been told not to record a meeting, or they might have recorded it without giving thought to the blameworthiness of doing so.

The EAT noted that employers rarely list covert recording as an example of gross misconduct in disciplinary procedures, so those with strong views may wish to address that. It might also be useful practice at the start of any such meeting to remind an employee of a policy of not allowing recordings and of the consequences of breaching it. The miscreant employee will then, of course, have a recording of that warning! (Phoenix House Ltd v Stockman UKEAT/0284/17.)

Discrimination: speaking out in public

Page v NHS Trust Development Authority (UKEAT/0183/18) is an interesting example of the cases in which a business has avoided liability for discrimination by persuading the tribunal that there is a distinction between taking action for what a staff member believes, and the way they go about expressing those beliefs.

When Mr Page, a non-executive director of the NHS Trust Development Authority, spoke out in public that he thought that homosexual activity was wrong and that he did not agree with same-sex marriage and adoption, the Authority decided not to renew his term. He was a Christian who made his comments on religious grounds.

There was no direct discrimination because he was removed for repeatedly speaking to the media without first informing the Trust, despite repeated requests to seek permission. The reason for non-renewal was not his religious belief. His claim for indirect discrimination also failed for technical reasons.

The distinction is a fine one, and for that reason potentially risky, but it is a distinction nonetheless which could on occasions save employers from liability.

Using WhatsApp messages in disciplinary proceedings

The Scottish Court of Session has decided that the Police Service of Scotland was entitled to use WhatsApp messages discovered on an officer's smartphone as a legal basis for bringing misconduct proceedings against officers in the chat group. The messages were discovered as part of a separate criminal investigation.

The officers argued that it was a breach of their right to privacy under common law and Article 8 of the European Convention on Human Rights to use messages for a purpose collateral to the original investigation.

The Court held that there would generally be an expectation of privacy for any WhatsApp messages. However, the police are subject to professional standards which apply both on and off duty, so their expectation of privacy is limited. Failing to comply with those standards, as evidenced by the messages, would be likely to interfere with the impartial discharge of an officer's duties or at least give that impression to the public.

The case is quite particular given the public responsibilities of the police and in fact acts as a reminder that in a private sector situation the sort of objection raised here may gain more traction. (BC and others v Chief Constable Police Service of Scotland and others [2019] CSOH 2019.)

Posting offensive images

Social media again eh? The question in Forbes v LHR Airport Ltd (UKEAT/0174/18) was whether the posting of an offensive image on Facebook was done ‘in the course of employment', rendering the employer liable for the consequences of what its employee did.

Mr Forbes was a security officer at Heathrow. A fellow employee posted a discriminatory image of a golliwog with the caption, "Let's see how far he can travel before Facebook takes him off". One of her colleagues, a ‘Facebook friend’, showed it to Mr Forbes (who, perhaps with good reason, was not).

Mr Forbes raised a formal grievance which was, unsurprisingly, upheld and the fellow employee was disciplined. Mr Forbes went on to claim against his employer for harassment, victimisation and discrimination on the grounds of race, alleging that the fellow employee had acted in the course of her employment.

The Tribunal, supported by the EAT, disagreed. The fellow employee had not posted the image while at work, or on a work computer; it was shared amongst a private group which did not include Mr Forbes; and it made no reference to her employer. Online activity, such as using a personal social media account for work purposes, might create a connection to work and the employer, but not on these facts.

Constructive knowledge of disability

The EAT has overruled a Tribunal on whether employer had constructive knowledge of an employee's disability.

It was accepted that the employee was disabled – she suffered from stress, depression, low mood and schizophrenia. However, the employer had not known about these conditions as the employee had concealed them, explaining sickness absences by reference to physical ailments.

When she was dismissed the employee claimed discrimination arising from disability.

The Tribunal held that the employee’s work absences posed a question about her psychiatric health and the employer's failure to make enquiries about them meant it could not deny that it ought to have known that the employee was disabled.

The EAT said the Tribunal had got it wrong. The Tribunal should have gone on to consider what the employer might have reasonably been expected to know had it made further enquiries. The Tribunal had found that the employee would have continued to suppress information about her mental health problems, would have insisted that she was able to work normally and would not have agreed to any medical examination. The employer could not have reasonably been expected to have known that the employee was disabled.

My advice to employers is not stick their fingers in their ears when it comes to trying to find out about health issues and I stick by that. In this case it seems that if the employer had asked it would have got no further information, been no worse off and would have saved itself a protracted legal argument. (A Ltd v Z UKEAT/0273/18.)

The information and any commentary contained in this newsletter are for general information purposes only and do not constitute legal or any other type of professional advice. Darryl Evans and Evans Employment Law Limited do not accept any and, to the extent permitted by law, exclude all, liability to any person for any loss which may arise from relying upon or otherwise using the information contained in this newsletter. If you have a particular query or issue you are strongly advised to obtain specific, personal advice and not to rely on the information or comments in this newsletter.

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