Customer Systems plc (CS plc), a company specialising in customer relationship management software, employed Mr R straight from university in 2001. By 2009 he had been promoted to divisional manager. He was not a director of CS plc and his contract contained no relevant post-termination restrictions.
Mr R had become dissatisfied with his role at CS plc in 2007 when he bought a domain name and formed a company. But at this time he did not take any further actions to compete with CS plc. In January 2009 he gave one month's notice under his contract. During his notice period CS plc alleged that Mr R had meetings with two clients that Mr R should have disclosed to CS plc. It commenced proceedings in the High Court for breach of fiduciary duty and breach of the implied duty of fidelity. The High Court upheld CS plc's case.
The Court of Appeal (in Ranson v Customer Systems plc) held that the High Court had failed to draw a clear distinction between directors who owe fiduciary duties and other employees who generally do not. The Court noted that a fiduciary duty requires single-minded or exclusive loyalty and may have prevented the actions that Mr R took as he would have been obliged to pursue the interests of the company at the expense of his own. But the Court said that Mr R was not a director of CS plc and an analysis of Mr R's contract did not require a fiduciary duty to be imposed.
The Court went on to find that the High Court had failed to look at Mr R's contract and establish what his job description was. This was relevant in two ways. First, as to the existence of a fiduciary duty and secondly, as to whether the meetings that CS plc complained of could be said to be in breach of the implied contractual duty of good faith and fidelity implied into every contract of employment.
The Court of Appeal found that the first meeting had been initiated by the client, who was a personal friend, that the company that the client now worked for was not a customer of CS plc and that it was not part of Mr R's job at CS plc to chase custom from the client's new employer, who was not within Mr R's 'patch'. It was not a breach of the implied duty of fidelity not to report the meeting to CS plc.
The second meeting was a dinner with a client of CS plc's which took place two days before Mr R left CS plc. The Court found that nothing specific was discussed and nothing came of the meeting until many months later when the relationship between the client and CS plc broke down for reasons unrelated to Mr R. Mr R was not in breach of the implied contractual duty of fidelity by failing to report this meeting to CS plc or by failing to report his intention to compete. Mr R's appeal was allowed.
This case emphasises the importance of keeping contractual documentation up to date. In this case neither the employee's job description nor his contract had been updated as he was promoted. The Court of Appeal stated that Mr R may have been in breach of contractual obligations had the contract contained provisions requiring him to report on such contacts with clients. The Court may also have imposed a more onerous fiduciary duty if express duties had been included in the contract requiring the employee to act in the best interests of the employer at all times and declare any intentions to compete. It would also have been advisable for CS plc to consider contractual provisions applying after employment (see below for two cases concerning post-termination restrictions).
Whilst the employee in this case had not breached the implied contractual duty of fidelity, the case does not mean that no preparatory acts of competition will breach the duty - each case will turn on its facts and advice should be sought on individual circumstances.