don’t rely on a court to fix a “defective” restrictive covenant

It is often said that a court, when considering contractual issues, will overlook drafting errors in order to give effect to what the parties intended and therefore make sense of what would otherwise be contradictory or plainly “wrong”. Indeed there are many High Court judgments which clearly apply that approach.

However, it is a dangerous game to assume that a court will always do so, as discovered by Prophet plc, a computer software company.

In Prophet plc v Christopher Huggett the Court of Appeal was asked to consider restrictive covenants in a contract of employment. On first reading the restrictions were fairly unremarkable. Prophet has for a number of years developed, sold and updated computer software for the fresh produce industry. Typically customers were granted 12-month renewable licences to use the software.

Mr Huggett, who had experience in the fresh produce market, was employed on a salary of £50,000 plus commission, with a notice period of three months. His contract included the following:
The Employee shall not during the continuance of this Agreement, or for a period of twelve months from the determination thereof (for whatever reason or in whatsoever manner), without the consent in writing of the Board of Directors of the Company, either solely or jointly with, or as, a Director, Manager, Agent, Consultant or Employee of any other person, firm or company, directly or indirectly, carry on or be engaged, concerned or interested in any business which is similar to, or competes with, any business of the Company in which the Employee shall have worked whilst employed hereunder (in that they provide computer software systems of whatever kind to any company involved in the fresh produce industry) within the geographical area (namely the United Kingdom), except as a shareholder or debenture holder not having a controlling interest in any Company the shares of which are quoted on a recognised Stock Exchange. Provided that this restriction shall only operate to prevent the Employee from being so engaged, employed, concerned or interested in any area and in connection with any products in, or on, which he/she was involved whilst employed hereunder.

The court took the view that the restriction in the long sentence was unenforceable since it was an unreasonable restraint of trade. However, the limitation in the second sentence was clearly designed to make the restriction reasonable. But it didn’t work. Sentence one would provide Prophet with the protection it wanted (but wouldn’t be allowed). However, sentence two, read literally, excluded that protection. The inclusion of the word “and” is critical. As the court observed there is no doubt that it is a true conjunctive. Therefore the condition concerning “products” is operative and, critically, could be taken only as referring to Prophet’s own products. The competitor Mr Huggett wanted to work for unsurprisingly sold their own products rather than Prophet’s products and therefore the clause did not provide the intended protection.

In the High Court it was suggested that “products” might mean (a) specific Prophet products, (b) any Prophet products, (c) business process software designed for the fresh produce market, (d) business process software for businesses or (e) any software. The Court opted for (c) and therefore granted an injunction as follows:
The Defendant is prohibited, until 3 January 2015 and within the United Kingdom only, from being directly involved in the provision of business process computer software designed for the fresh produce industry, save that the prohibition shall not prevent the Defendant from acting as a minority shareholder or debenture holder or in a business which does not compete with the Claimant.

The Court of Appeal disagreed.

obesity may be a disability

Last month I reported the case of Mr Kaltoft, a Danish childminder who was dismissed because he was too big to carry out some of his duties, e.g. tying children’s shoelaces.

We now have the Opinion of the Advocate General of the European Court concerning the issues raised in the case. Although this is not the judgment itself, such opinions are nearly always followed by the Court.

The key conclusion is that obesity is not of itself a disability and therefore protection from discrimination is not available on this basis alone. However, as is so often the case with European decisions and particularly those concerning employment law, that is not the end of the story.

Advocate General Jaaskinen includes in his Opinion a discussion about body mass index (BMI) which opens the door to the possibility that obesity may be treated as a disability and thereby attract protection from discrimination. In essence he suggests that a person with BMI of over 40 is likely to have problems which hinder his or her “full participation in professional life on an equal footing with other employees due to the physical and or psychological limitations that it entails” in which case obesity “can be considered to be a disability”.

Incidentally, having a BMI of over 40 is what is commonly referred to in the United Kingdom as being morbidly obese. There is a handy BMI calculator (based on height and weight) at the BUPA website (free of charge!).

Of course this opens up the question of where to draw the (waist)line! Is someone with a BMI of 39.5 not disabled and someone with 40.5 disabled? I can see room for a great deal of litigation in this regard. Further the Opinion of the Advocate General is precisely that, an opinion, and not a medical one at that. What if a medical expert expresses the view that someone with a BMI of, say, 35 nonetheless suffers from the characteristics identified as establishing disability.

religion and employment

Two cases of note warrant a mention this month. First, a health worker has been found guilty of misconduct following a disciplinary investigation. Victoria Wasteney, a Christian, is a senior occupational therapist working for East London NHS Foundation Trust was found to have bullied a Muslim work colleague.

The allegations made included:

– asking her to pray with her
– giving her a book about a Muslim woman who converted to Christianity, and
– asking her to a sports day at her church

The decision followed a nine months’ suspension. She has received a written warning and has been told that she must not talk about her faith when at work. However, she is appealing the decision with the support of the Christian Legal Centre. The Centre is well known for being involved in a number of the most high profile religious discrimination cases in recent years.

As I reported in early 2011 there is a particular problem with the interaction between work colleagues and those whose religion includes and encouragement or even obligation to evangelise. It is a classic dilemma of competing human rights.

Meanwhile details have emerged of a very unusual case including allegations of sectarianism, not in Northern Ireland but in Scotland Yard. Detective Inspector Paul Armstrong, a Roman Catholic, says that he was routinely subjected to bullying and harassment by his boss, Detective Chief Inspector Mark Roycroft, and Ulster protestant. He maintains that exclusion from meetings, blocking promotion and career progression and numerous untrue statements constituted direct discrimination resulting from sectarian bias. Scotland Yard is yet to decide whether to contest the claim which is due for a hearing in the central London Employment Tribunal in September.

cases proving costly to the public purse

On 22 July news emerged via BBC Newsnight that Haringey Council accounts show that a payment of £679,452 was made to Sharon Shoesmith.
1) Haringey council accounts are out showing £679,452 settlement w Sharon Shoesmith, first revealed in Oct on #newsnight with @jakemorristw

— Allegra Stratton (@BBCAllegra) July 22, 2014

The breakdown reveals salary and related payments amounting to £377,266, £217,266 compensation for loss of office and £84,819 for employer contributions. The Council had already disclosed that it has paid legal costs amounting to £196,000.

Ms Shoesmith has said that she “does not recognise” the figure quoted. The likely reason for this response is that the terms for settlement were set out in a settlement agreement with a confidentiality clause. Haringey has almost certainly breached the clause by disclosing the amounts but they were in a catch 22 because they are at the same time obliged to itemise such expenditure in the accounts. They will probably say that they were legally bound to make the disclosure notwithstanding that the disclosure defeats the purpose of the clause.

In the meantime Caerphilly Council will have paid suspended chief executive Anthony O’Sullivan over £330,000 by the time of his trial for misconduct in public office in January 2015. His suspension commenced in early 2013 when a police investigation was launched. There is a well known problem in progressing disciplinary proceedings while criminal investigations and proceedings are ongoing since employment sanctions cannot be imposed without proper investigations and disciplinary proceedings and it is generally thought inappropriate for criminal and employment proceedings to run in parallel. Of course, to suspend without pay would be likely to indicate a presumption of guilt so the Council really has no option other than to make the payments.

Audit costs add a further £900,000 and £1.5m extra will have been paid to employees as a result of the disputed pay deal.

crackdown on bankers? is it really all it’s cracked up to be?

On 30 July and amid much fanfare the Bank of England’s Prudential Regulation Authority announced what is to be “the strictest industry regulation in the world” with a wide range of civil and criminal sanctions available to be applied against defaulting bank employees.

Headlines included a new criminal charge of “reckless mismanagement” which could lead to imprisonment if banks are not run properly. There is also the prospect of recouping bonus payments for up to seven years in respect of those who are found to have been “guilty of misconduct”.

Recoupments are to apply even if the money has been paid and spent.

Although cautiously welcomed by Anthony Jenkins, chief executive of Barclays, the general industry response has been swift and predictably negative. According to the British Bankers Association the new rules will place the UK banking industry at a competitive disadvantage. They have also trotted out the usual claim that City bankers are paid less than in other major financial centres and there might therefore be a dispersal of talent elsewhere.

Are the new rules really so severe? As far as criminal sanctions are concerned, they will require legislation so will first be subject to parliamentary scrutiny. It is likely to be very difficult to pin the criminal burden of proof – guilt beyond all reasonable doubt – on a specific individual or individuals. However, bankers can already be imprisoned and face unlimited fines for “causing a bank to fail” by taking a “reckless decision”. So is this really the “game changer ” that some have suggested?

As for civil penalties, there are obvious employment aspects. Significantly, although it was considered, the rules will not be applied retrospectively. This is no surprise since, to do so, would have the effect of imposing sanctions for breaches not identified as such at the time.