No said the Employment Appeal Tribunal in Khan and Another v Ladsker Child Care Limited.

The Facts

Mr. Khan was a manager of care homes. He and a colleague put together a detailed business plan to set up a competing business with a view to seeking investors. An email was discovered on Mr Khan’s office computer attaching a document, which, in the opinion of the employer, showed that he and his colleague were planning to compete with their employer by using information obtained through their employment. When this came to their employer’s attention they were dismissed for gross misconduct, on the basis that by planning to set up a business in competition and using company resources to do so they had breached the term of confidence and trust that is implied into every contract of employment. The employees claimed that the plans were not serious, and should not have been of concern to the employer. Their internal appeal against dismissal failed and both claimed unfair dismissal.

The Employment Tribunal found the dismissals fair on the basis that the employer had a genuine belief that Mr Khan and his colleague were guilty of gross misconduct, and that this was within the “band of reasonable response” which it is open to an employer to make. The employees then appealed to the Employment Appeal Tribunal. The Employment Appeal Tribunal upheld the appeal holding that the Employment Tribunal had failed to consider whether the fact that the employees were planning to set up in competition was capable in law of amounting to a breach of the implied term of trust and confidence and gross misconduct. The Employment Appeal Tribunal held that an employee who intends to leave to set up in competition commits no breach of contract unless there are enforceable covenants in his contract or he misuses confidential information of his employer. The Employment Tribunal had also not considered if the information in the business plan constituted confidential information belonging to the employer.

The case was remitted to the Employment Tribunal to determine if the information that Mr Khan and his colleague had used for their business plan could be regarded as confidential information so as to entitle the employer to dismiss for gross misconduct.

What does this mean for you?

Employees are entitled to take preparatory steps to set up in competition and that doing so does not amount to gross misconduct entitling an employer to dismiss. The line between preparing to compete and actually competing is a fine one, and cases have sought to draw the line at the point at which an employee forms and irrevocable intention to compete. Dismissals will, however, be capable of being fair if the employee also breaches obligations of confidentiality by misusing their employer’s confidential information for their own purposes. In addition, employers can further protect themselves by including express provisions in contracts of employment preventing employees from engaging in competitive activities during the course of their employment and requiring employees to report such activities or any other wrongdoing (whether they are their own or those of a colleague). It is unlikely that such terms are capable of preventing an employee from taking preparatory steps to compete (rather than actually competing), provided that such preparatory activities do not involve any wrongdoing (such as misusing confidential information). However, in practical terms, as well as acting as a deterrent, such clauses will certainly assist once an employee crosses the line and his/her activities go beyond the preparation stage.