All employees owe their employer a duty of fidelity regardless of their seniority. This duty is an implied term in every employment contract. It requires the employee to serve his/her employer with good faith and fidelity. In practice, this duty encompasses a duty not to compete with the employer’s business, and not to solicit or entice away the employer’s customers and employees. This QuickStudyexamines a couple of recent cases that illustrate how employers can rely on the duty of fidelity as well as garden leave to prevent departing employees from damaging their business.
In recent years, employers have sought to establish that certain senior employees also owe fiduciary duties. Whereas fiduciary duties require an employee to act in the best interests of his/her employer, the duty of fidelity merely requires an employee to have regard to the employer’s interests. It does not require the employee to subjugate his/her interests to those of the employer which is a key characteristic of a fiduciary relationship. Also, a fiduciary has an obligation to report his/her own wrong doing to the employer, rather than simply report the wrong doing of others. The duty of fidelity alone can, however, give the employer sufficient protection to avert a threat from unlawful competition.
Employers often rely on the weapon of garden leave to prevent a senior employee from having access to clients and staff during the notice period. An English Court will only enforce a garden leave provision if it is of reasonable length and is used to protect the employer’s legitimate interests. It is generally accepted that a six month period of garden leave is likely to be enforceable but a longer period may not be. The case below confirms that a longer period of garden leave will be enforced in some situations.
Failure to Report the Orchestration of a Team Move
In Thomson Ecology Ltd and another v APEM Ltd and others  EWHC 2875 (Ch), the High Court considered a summary judgement application against a senior employee (an Operations Manager) who orchestrated a team move involving an attempt to transfer a significant part of his employer’s business to a competitor.
In the absence of any post-termination restrictive covenants, or any express terms regarding confidential information, the employer brought claims against the employee for breach of his contractual duty of fidelity and fiduciary duty, and against the competitor for passing off.
In this case, the employee sought to move his employer’s business over to a competitor whilst he was still employed. This involved assisting the competitor to recruit a substantial part of the employer’s workforce (17 biologists in total). He also established a company with a similar name as part of his plan to transplant the employer’s business to the competitor and he registered similar domain names.
The Court found that the employee had broken his implied duty of fidelity: by failing to inform the employer of a threat from a competitor to its business, discussing other employees’ salaries with the competitor, arranging meetings with his colleagues at his home to discuss offers of employment from the competitor, and conspiring with the competitor in identifying and actually recruiting the employer’s staff actively. In this case, the question of whether the employee owed a fiduciary duty was deferred until trial.
The Court reached the conclusion that the employee was under a duty to inform his employer that there was a planned poaching raid upon the employer’s employee or client base. It did not accept that employees, in particular senior employees, could keep silent when they knew of a planned poaching raid. The Court went on to find that the employee had plainly acted in breach of his duty of fidelity towards the employer by formulating a plan with the competitor to entice away staff from the employer and then assisting with implementing that plan. It was irrelevant that the staff were entitled to leave on short notice, and that there would have been nothing to stop the employee from poaching once his own employment contract came to an end.
Enforcement of 12-Month Garden Leave Period
In JM Finn & Co Ltd v Holliday  EWHC 3450 (QB), the High Court considered whether to grant an injunction to enforce a contractual garden leave clause for the duration of a senior stockbroker’s 12 -onth notice period.
The employee (who claimed to be an “old fashioned stockbroker”) was subject to 12-months’ notice and an express garden leave provision. His attempt to negotiate an early exit in order to join a competitor to his employer failed. The employee then resigned and sought to claim constructive dismissal alleging that his employer had not continued to send him briefing notes to keep him abreast of market news.
The employer applied for an interim injunction to enforce the restrictions contained in the employer’s contract. The Court granted the interim injunction pending full trial. The injunction prohibited the employee from providing the employer’s client information to, or working for, any stockbroking firm as well as soliciting the employer’s existing or potential clients. Despite the injunction, the employee sought to divert business opportunities from his employer to the competitor and undermined the employer’s attempts to foster new relationships with clients.
This case went to a full trial. The Court extended the injunction until the expiry of the employee’s 12-month notice period. It considered that 12 months was a reasonable period of time for a stockbroking firm to establish itself with its clients. The Court rejected the argument that the employee had been constructively dismissed because it was concerned that this argument was deployed to avoid the notice period and garden leave. It repeatedly found the employee to be an unreliable witness. The employee had tried to divert a business opportunity from his former employer to his new employer, breaching the terms of the interim injunction. The case is an example of the Court finding a long period of garden leave to be reasonable in the circumstances.
hese cases show how useful the duties of fidelity and garden leave can be in protecting an employer’s business when employees try to engage in competitive activity during their employment. The Court may be prepared to enforce strictly both express and implied terms of the employment contract in the face of blatant competitive activity by departing employees.
Restraint of trade cases are always highly context-specific. In practice, much is likely to depend on the seniority of the employees, the actions and intentions of the employees and the number of employees involved in a move. What is a reasonable period of restraint in one case will not always be reasonable in another, even if the two cases might share some similarities.