Employment Law Bulletin - May 2023

Welcome to our latest employment law update bringing you up to speed with this month’s key cases and developments.

In this month’s bulletin, we draw attention to new guidance published in relation to mental health and ethnicity pay gap reporting, as well as updating on the consultation on the government’s proposed Code of Practice on termination and re-engagement. We also report on a recent case on the interpretation of restrictive covenants.

New ACAS Guidance

New ACAS guidance is available in a number of areas:

• ACAS Guidance on reasonable adjustments for mental health
• ACAS Guidance on managing work-related stress

Both provide useful guidance and, whilst not having any statutory force, it can be useful for employers facing claims to show that they have considered and followed ACAS guidance when approaching difficult issues.

Ethnicity Pay Gap reporting

Unlike the gender pay gap, it is not compulsory for businesses to report on their ethnicity pay gap, but some employers wish to do so voluntarily. The government has recently published Guidance for employers on doing so. The guidance includes advice on:

• collecting ethnicity pay data for employees
• how to consider data issues such as confidentiality, aggregating ethnic groups and the location of employees
• the recommended calculations and step by step instructions on how to do them
• reporting the findings
• further analysis that may be needed to understand the underlying causes of any disparities
• the importance of taking an evidence-based approach towards actions

Code of Practice on dismissal and re-engagement (“fire and re-hire”)

18 April 2023 saw the end of the consultation period for the Government’s proposed Code of Practice on employers changing terms and conditions by way of dismissal and re-engagement.

There have been a number of respondents and one of those, ACAS, has published its response to the consultation. ACAS states that it supports the general policy objective, which is “to ensure that an employer takes all reasonable steps to explore alternatives to dismissal and engages in meaningful consultation with trade unions, other employee representatives or individual employees in good faith, with an open mind, and does not use threats of dismissal to put undue pressure on employees to accept new terms”.

However, ACAS states that it has a number of significant concerns about the workability of the current draft of the Code and its capacity to achieve its objectives. For example, it flags significant uncertainties around the intended scope of the Code and a concern that the steps set out in the Code do not reflect the real-world realities of consultation and negotiation and may unintentionally result in encouraging poor practice.

There is no stated timescale for the introduction of the Code of Practice, so we await news of what changes will be made to the draft Code and when it might be implemented.  

Interpretation and enforcement of restrictive covenants

Post-termination restrictions are only enforceable insofar as they go no further than reasonably necessary to protect the company’s legitimate business interests. It has been established law for some time that a court can, in some circumstances, apply the “blue-pencil” to delete unreasonable elements of a restriction if such deletions leave a clear and reasonable restriction that does not generate any major change to the overall effect of the restrictions. However, the court cannot write in new words to the restrictions (the blue-pencil can only strike out words) and cannot use this power to render the contract “not the sort of contract that the parties entered into at all”.The Court of Appeal recently applied these principles in the case of Boydell v NZP Ltd & Anor

Dr Boydell was a senior employee at NZP and resigned to join a competitor. NZP worked in a particular area of the pharmaceutical industry and sought an injunction to prevent Dr Boydell working for the competitor as his contract contained a 12 month non-competition restriction. The High Court granted the interim injunction, having applied a blue pencil and deleted some wording from the non-competition restriction in Dr Boydell’s contract (the reference to “group companies”).

Dr Boydell appealed, arguing that the restriction was far too wide because as originally drafted it prevented him working at any company which produced general pharmaceutical products, and this could cover an unreasonably wide range of businesses not operating within NZP’s particular area of the market. It would, for example, prevent him working for generalist companies like Boots or Superdrug, so must therefore be so wide as to be unenforceable.

The Court of Appeal dismissed his appeal, finding that Dr Boydell’s interpretation of the clause fell into the category of “extravagant, fantastical or unlikely or improbable” that did not reflect a realistic assessment of the parties’ intention. The Court of Appeal commented, “if at the time of signing, 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, I am confident that both parties would have said “of course he would”.

Whilst the court in this case upheld some deletions from the restriction, the principle should not be seen as a “get out of jail free” card for employers drafting restrictions. It remains important that if employers want to enforce restrictions, they try to draft them in a way that goes no further than reasonably necessary to protect their legitimate business interests.

There is no guarantee that a court will exercise its discretion to apply a blue-pencil to the restrictions, and even if it does, case law suggests that a court may hold the employer liable to pay the legal costs of the arguments about the restriction: “Overboard and uncertain restrictions are legal litter. They cast an unfair burden on others to clear them up. That should not be without consequence for those responsible for them even if there is a kernel of justification for the claimant”