In the case of Ranson v Customer Systems plc, the Court of Appeal has held that a former employee did not breach a contractual duty of fidelity or any fiduciary duty to his employer by failing to inform the employer of meetings he had with clients with a view to starting a competing business.
Ranson, a senior employee of the Respondent, resigned in 2009 having already put in place preparations for a new competitor company. During his notice period, Ranson set up meetings with the Respondent’s clients to discuss potential business for his new company. The Respondent brought a claim that Ranson had breached his fiduciary duties and duty of fidelity by setting up the competing company whilst still employed by the Respondent, by meeting with their existing clients with a view to obtaining business, and by failing to inform the Respondent of his actions.
The High Court initially held that Ranson owed both a duty of fidelity and fiduciary duties to the Respondent, and that he had breached these duties by his actions. The Court of Appeal however overturned this decision, noting the importance of distinguishing between an employee and a director when considering fiduciary duties. Whilst a director, by virtue of his role, will owe fiduciary duties to a company, “an employee will not, merely by reason of his role as an employee, assume fiduciary obligations.” Regard must be had to the contract of employment in determining the existence and extent of any fiduciary duties. The implied duty of trust and confidence, which is present in every contract of employment, cannot be relied on to give rise to fiduciary duties, since not every contract of employment will require a fiduciary relationship.
The Court of Appeal further noted that, even if not expressly stated in the employment contract, an employee will have an implied duty of fidelity to act in his employer’s interests whilst in employment, but this does not give rise to a requirement to put the employer’s interests before their own. Lastly, whether an employee is under a duty to disclose their own wrongdoing depended on the terms of their contract, there being no general duty to do this. In this case, Ranson did not owe fiduciary duties to his employer, and his actions were not held to have breached his duty of fidelity.
Impact for employers
- This case highlights that the contract of employment is crucial in determining whether an employee, rather than a director, owes fiduciary duties to his/her employer. Employers should bear in mind that, due to the crucial difference between a director and an employee’s position, analogies cannot always be drawn between the two cases.
- Whilst the duty of fidelity requires an employee to have regard to the employer’s interests, it does not operate so as to require the employee to put the employer’s interests above their own.
- The facts of this case also serve to highlight the importance of having effective restrictive covenants in employees’ contracts, which could have served to protect the employer’s interests here.