tgilson,
Cab 3707 may have contacted you already. If not, the paragraph he quotes is in a document called the "UK CAA Limitations Guidance document". I don't have the link to hand, bu a search should find it. It's guidance for AMEs on the limitations put on medicals.
Anyway, the last paragraph is the one quoted above. What it means, if I've understood correctly, is that with a Class 1 OML/Class 2 unrestricted, you can instruct, but NOT AB-INITIO STUDENTS. You also can't be paid unless you have a Class 1...or maybe you can, if you have a CPL, not 100% certain of that. Anyone know? I wouldn't have thought so, if you're instructing on the basis of your Class 2.
I now have my medical back with the restriction stated above.