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Recent Court of Appeal case

Published 15 October 2012

An appeal decision handed down by the Court of Appeal in the Summer examined the often knotty issue of whether an employee who take preparatory steps to set up a business he intends to carry on after leaving his current employment breaches his employment contract by taking those steps. Alongside this issue runs the question of distinguishing between duties of fidelity and fiduciary duties : concepts that sound similar but which carry different meanings and reflect the different status held during a period of employment.

The case was Ranson v Customer Systems PLC. R worked for C, an IT consultancy. R was in a senior managerial position but did not hold director status. R resigned, and in the months prior to his resignation he had set up his own company which would compete with C. C alleged R had been in discussions with clients and was fearful of enticement. C succeeded initially, but on appeal the decision was overturned.

As R was not a director he could not hold fiduciary duties. This duty requires the director to act loyally in the interests of the company at all times. It has higher standing as a brand of loyalty in that the person is engaged to put the interests of the company ahead of all others. Fidelity also brings with it obligations of loyalty, but this brand of loyalty regulates ordinary employees and the breadth of this duty should be assessed against the obligations in the employment contract itself. It is often the case that junior and middle ranking employees do not have non-competition clauses in their contracts and therefore employers who try to restrict their activities using the alternative of implied terms face great difficulty in protecting their business interests. Further, in some cases preparatory steps have been found not to be proximate enough to breach the implied term of fidelity.

The lesson of this case is that employers should consider which employees below director level carry such responsibility that a review of their employment contracts should be carried out. Cases such as Ranson demonstrate that employees can slip through the net of business defence and expose a company to possible enticement post-termination.

Carl Fender Barrister

Regency Barristers Chambers
45 Priestgate Peterborough.
01733 315 215
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