May’s Employment Law Digest – Case law update

Enforcing restrictive covenants – Boydell v NZP Ltd

• Dr Boydell resigned from his position with NZP as Head of Commercial – Speciality Products.
• NZP is in a niche area of the pharmaceutical industry involved in the development, production and sale of bile acid derivatives to pharmaceutical companies.
• Following his resignation, Dr Boydell stated his intention to join Zellbios GmbH, to head their “bile acid business.”
• NZP sought to enforce restrictive covenants contained in Dr Boydell’s employment contract, which ran for 12 months from the termination of his employment. The covenants included a non-compete clause which sought to prevent him from “being involved in any activity for the benefit of any third party that carries out any business activity that would compete with the business activity carried out by NZP or by any other company in the group”.
• The High Court granted an interim injunction enforcing the non-compete clause, with some modifications. In doing so, the judge deleted some of the clause, including the reference to group companies, on the basis that it was too wide to be enforceable.
• Dr Boydell appealed. He argued that:
  • the clause, as drafted, was too wide in that it prevented him from working for companies producing general pharmaceutical products such as nasal sprays (e.g. for Boots or Superdrug) and that this goes far beyond what was reasonably necessary to protect the legitimate interests of NZP.
  • the offending words could not be severed under principles in established case law and therefore the whole clause was unenforceable.

The Court of Appeal rejected the appeal. It found that:

• If at the time of signing the employment contract containing the covenants, the parties had been asked by the “hypothetical officious bystander” whether after leaving NZP he would be able to go to work for Boots or Superdrug, …both parties would have said “of course he would”. The clause was directed to the specialist activities of NZP and the judge was entitled to sever the words from the clause and grant an injunction on a more limited basis.
• It was not plain and obvious that the clause was incapable of severance; nor that, as severed by the judge, it was too wide to be enforceable.
• Decisions in this field are highly fact-sensitive. Where the employer is, for example, a large public company covering a variety of fields of business activity it may be very difficult to justify a covenant against competition of the kind in this case even on the basis of a senior employee’s knowledge of the company’s commercial secrets. But this was far less obvious where the company, as was the case with NZP, has a highly specialised or niche business.

This case may be helpful in some cases for employers seeking to enforce restrictive covenants. However, asking a court to sever parts of a covenant so it can be enforced should be a last resort for employers. Taking the time to carefully consider, on an individual basis, what covenants are required in an employment contract remains crucial and the best chance an employer has to protect legitimate business interests.

Vicarious liability

In Trustees of the Barry Congregation of Jehovah’s Witnesses v BXB, the Supreme Court considered the test for “vicarious liability” (where a defendant is held liable for a “tort” (a civil wrong) committed by a third party) in a case concerning part of the Jehovah’s Witness organisation, which had been found to be vicariously liable for a rape committed by one of their elders.

• In 1990, Mrs B, was raped by an elder of the Barry Congregation of Jehovah’s Witnesses, Mark Sewell, at his home, after they had been out evangelising together. Mrs B was at Sewell’s home when the rape occurred because she had been instructed by another elder to provide emotional support to him and his wife as she was told he was suffering with depression. Sewell was convicted of raping Mrs B, and of indecently assaulting two other people, in 2014.
• In 2017, Mrs B brought a claim for damages against the worldwide governing body of the Jehovah’s Witnesses, Watchtower and Bible Tract Society of Pennsylvania, and the Trustees of the Congregation. She claimed that they were responsible in law (or, “vicariously liable”) for the rape, because of the nature of their relationship with Sewell and because of the connection between that relationship and the commission of the rape.

Both the High Court and the Court of Appeal found in Mrs B’s favour.

The Trustees of the Congregation appealed to the Supreme Court which unanimously allowed the appeal and found that the Jehovah’s Witness organisation was not vicariously liable for the rape committed by Mark Sewell.

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The Supreme Court recapped the applicable two stage test for vicarious liability:

The test at stage 1 –  whether the relationship between the defendant and the tortfeasor (the person who commits the civil wrong) was one of employment or akin to employment.

The Supreme Court agreed that the relationship between the Jehovah’s Witness organisation and Mark Sewell was akin to employment. As an elder:

• Sewell was carrying out work on behalf of, and assigned to him by, the Jehovah’s Witness organisation;
• he was performing duties which were in furtherance of, and integral to, the aims and objectives of the Jehovah’s Witness organisation;
• there was an appointments process to be made an elder and a process by which a person could be removed as an elder; and
• there was a hierarchical structure into which the role of an elder fitted.

The test at stage 2 (the “close connection” test) –  whether the wrongful conduct was so closely connected with acts that the tortfeasor was authorised to do that it can fairly and properly be regarded as done by the tortfeasor while acting in the course of their employment or quasi-employment.

The Supreme Court decided that the stage 2 test had not been satisfied. The rape was not committed while Sewell was carrying out any activities as an elder, the primary reason the offence occurred was not because Sewell was abusing his position as an elder but because he was abusing his position as a close friend of Mrs B when she was trying to help him.

Although Sewell and Mrs B’s close friendship continued only because of his role as an elder, this “but for” cause of Mrs B’s continued friendship and of her being with him when the offence occurred was insufficient to satisfy the close connection test.

National minimum wage

Workers who live in their employer’s family home, are treated as a member of the family and are not charged for food or accommodation do not qualify for the national minimum wage (NMW).

In Thukalil & Anor v Puthenveettil & Anor, the Employment Appeal Tribunal found that an Employment Tribunal (ET) had correctly disapplied this “family worker exemption” on the basis that it amounted to indirect sex discrimination.

• The Claimant was a domestic worker in the Respondents’ home from 2005 to 2013.
• Applying the family worker exemption set out in the National Minimum Wage Regulations 1999, the Claimant had been paid less than the NMW.
• The Claimant argued that the regulation was unlawful and should be disapplied, as it was indirectly discriminatory against women.
• The ET agreed with the Claimant – and held that they were bound to disapply the regulation and declare that the Claimant was entitled to the NMW.
• The Respondents appealed.
• The EAT agreed with the ET. The exemption put women in general, and the claimant in her work for the Respondents in particular, at a disadvantage when compared to men. The exemption was not a proportionate means of achieving a legitimate aim. The exemption was contrary to the Claimant’s EU law right (to equal pay for equal work or work of equal value) and therefore the ET had been bound to disapply it.

This case pre-dates the end of the Brexit transition period. As we work our way through the implications of Brexit, it is currently unclear to what extent ETs still have the power to disapply domestic UK law on the basis of incompatibility with principles of EU law.