Fidelity and Fiduciary Duties

In the recent case of Ranson v Customer Systems Plc the Court of Appeal set the parameters of when an employee owes his employer fiduciary and fidelity duties.

The Facts

The Claimant resigned and set up his own business. During his notice period he spoke to his employer’s clients about his intention of competing with his employer after he had left its employment. His employer claimed that he had breached his fidelity and fiduciary duty by not telling them about such discussions. Had he done so they would not have sustained a substantial financial loss.

The Decision

The Court of Appeal held that Directors owe fidelity and fiduciary duties to their companies, and there are some employees who also have such duties, although they can only be created by a contract of employment. The Claimant’s written contract covered the duty to do his job faithfully. In addition to this there was an implicit term that he did not breach the implied term of trust and confidence.

The Claimant’s obligations were not on par with fidelity and fiduciary duties owed by Directors and, whilst an employee, he must have regard to his employer’s interests his duties were not to the same extent as those of a Director. For such reasons, Customer Systems Plc’s allegation that the Claimant had failed to inform them of his actions was in breach of contract was not upheld. Also, his conduct prior to the termination of his employment was something he could do even if his intention was to compete with his employer after leaving.

What Does This Mean For You?

Any employee that is likely to be a threat to your business upon their departure must have carefully drafted clauses in their employment contract. At the very least it will act as a deterrent.

Should there not be anything sufficiently secure in place with your existing employees or you are concerned about whether the terms you have used are watertight, you should seek legal advice. Imposing an effective change requires a process which does not keep you open to any claims.

When pursuing an employee for financial losses a full review should be taken on whether you have any grounds to seek legal redress and to the likely return on any outcome.