Certain categories of employees owe fiduciary duties to their employer in addition to their contractual obligations under their contract of employment.

Background

Duties owed to their employer by someone who is a fiduciary are more onerous than those owed by an employee who is not a fiduciary.

Fiduciary duties can provide an organisation with a useful additional layer of protection against employee misconduct. In some situations an employer may not have the level of contractual protection they need so that fiduciary duties provide the only avenue for recourse. For example, where an individual does not have restrictive covenants in their employment contract, an employer's only means of protection against misuse of confidential information may be a claim in equity (or damages if in Scotland) for breach of fiduciary duty.

Additional remedies will potentially be available against an ex-employee who is a fiduciary; in addition to claiming damages for breach of contract, an employer can ask for an account of any profit made from the activities carried out in breach of their fiduciary duties.

However, not all employees owe fiduciary duties to their employer.

Which employees are fiduciaries?

Executives who hold the office of director will owe fiduciary duties to their company. The Company's Act 2006 codified certain common law fiduciary duties for directors, including the duty to promote the success of the company, the duty to avoid conflicts of interest and the duty to declare an interest in a proposed transaction.

Employees who are not directors may owe certain fiduciary duties to their employer but each case will turn on its own facts. It does not figure that a senior employee will always owe fiduciary duties and a junior employee will not. The position will depend upon the employee's role and responsibilities and particular relationship with the employer. To owe fiduciary duties, the employee must be in a position of utmost trust in relation to the employer's business or assets such that it is fair for additional fiduciary duties to be imposed.

In the leading case of Nottingham University v Fishel, it was held that fiduciary duties may exist because of the particular contractual obligations the employee has accepted.

Recent High Court decision

Where fiduciary duties are owed, employers have increasingly tried to recover salaries already paid to employees dismissed following the breach of a fiduciary duty.

However, in the recent case of Mauro Milanese v Leyton Orient Football Club, the High Court held that a senior employee did not owe fiduciary duties towards his employer but even if he did, he would not be required to pay back the salary he earned prior to his dismissal.

The facts

Mr Milanese had been appointed by Leyton Orient Football Club (the club) to the position of Director of Football on 10 July 2014. His appointment was for one year but could be terminated earlier without notice if Mr Milanese committed gross misconduct. It could also be terminated with notice but, under the terms of his contract, the club would be required to pay him one year's salary as compensation. The reason for such a large sum was that in the world of football, it would be difficult for Mr Milanese to get a job if he was dismissed part way through the football season.

On 26 January 2015, Mr Milanese was dismissed by the club without notice on the grounds of gross misconduct because the club believed he had overspent on players, although he refused to admit this when questioned.

Mr Milanese brought a breach of contract claim against the club in the High Court on the basis there were no grounds to dismiss him without notice. Mr Milanese claimed damages of one year's salary which is what he would have been paid if his employment was terminated with notice.

Following Mr Milanese's claim, the club discovered a number of other acts it considered were further breaches of Mr Milanese's contract of employment; one of which included alleged failings in relation to the handling of a talented young academy player.

The club counterclaimed that Mr Milanese owed fiduciary duties to the club given his senior position as Director of Football and that by his conduct he had breached these duties. The club claimed that Mr Milanese should repay the salary he had been paid since his appointment on the basis that his salary should be treated as profits deriving from a breach of his fiduciary duties.

The High Court's decision

Whilst the High Court held that the initial reason for Mr Milanese's dismissal, the alleged overspending on players, was not sufficient to amount to an act of gross misconduct, it did find that his handling of a talented young academy player was, therefore entitling the club to dismiss him without notice. Mr Milanese's breach of contract claim therefore failed.

Turning to the club's counterclaim, the High Court held that Mr Milanese did not owe fiduciary duties to the club. The High Court found that there were no contractual obligations in his contract which were capable of making Mr Milanese a fiduciary. As such, the counterclaim failed.

In its decision, the High Court went on to say that even if Mr Milanese was found to owe a fiduciary duty to the club, there was no reason for Mr Milanese to repay his salary. He had carried out the work under the contract and was entitled to be paid for his time.

What can we learn from this case?

The Milanese case demonstrates the importance of ensuring a senior employee's duties are fully captured in the contract of employment. This will assist in any future argument that they owe fiduciary duties. In its decision, the High Court considered that Mr Milanese's actions in respect of the youth academy play were not connected to or contrary to any particular duty covered by his employment contract. This suggests that had it been, the High Court may have held that he owed a fiduciary duty to the club in respect of his actions with the youth academy player.

However, even if a fiduciary duty is established, this case shows that it will be difficult for an employer to 'claw-back' any salary paid to an employee during his employment. If the employee has performed the duties of their role, they are entitled to the salary they were paid, even if they have acted in breach of their fiduciary duties.

The case is also a reminder that an employer can rely on an act of gross misconduct to support its reasons for dismissing an employee in a contractual dispute, even if that act was discovered after dismissal had occurred.