According to the newly added 10.7 rule under "User interface," Watch Apps that have a "primary function" of telling the time will be rejected.
According to MacRumors one developer who had his app rejected from the App Store due to the time telling rule, used a clock-like face to display sunset/sunrise times along with the position of the sun and the moon.
The developer was told by Apple that Apple Watch apps containing a clock face, the likeness of a clock, or time-telling functionality would be rejected, and the Apple employee he spoke with mentioned that quite a few developers had been rejected due to the policy.
Apple Mean Time
Apple believes that only it should decide what the watch face should look like. It said that it is flogging the Apple Watch as an "incredibly accurate" timepiece, a claim that it might not be able to guarantee if a third-party time-telling app is allowed to display the time.
However there is a problem with this claim. Apple has consistently failed to write code which can handle changes in summer time and has occasionally sent Apple fanboys to work an hour late or early. We would have thought it far better to outsource the writing of such code to those who can actually do it.