Employers will be familiar with the measures that can be taken to protect their business’s interests from competing employees. Contracts of employment commonly contain confidentiality clauses to prevent employees from disclosing their employer’s trade secrets, as well as restrictive covenants which prevent the employee from competing with the employer’s business for a prescribed period following the end of their employment.
Over the years, case law has established that some duties are also implied into the employment relationship. For example, every employment contract contains an implied term that an employee will serve his employer with good faith and fidelity. It is also an implied term that an employee has a duty not to compete with his employer.
It is therefore understandable that, in the case of Ranson v Customer Systems plc, Customer Systems argued that it had a right to know when Mr Ranson, one of its employees, met with one of Customer Systems’ clients during his notice period, with a view to securing work for his own company following the termination of his employment with Customer Systems.
Yet, the Court of Appeal disagreed with Customer Systems. It found that there is no general duty on an employee to inform his employer if he undertakes any outside work that is in breach of his contract. Any such obligation can only arise from the express terms of the contract. Mr Ranson’s contract of employment contained a confidentiality clause, but it did not contain any restrictive covenants or an express requirement that Mr Ranson must inform Customer Systems of any breach of his contract committed by him.
It is worth bearing in mind that, had Mr Ranson been a director, he would have had a fiduciary duty to disclose his wrongdoing to the company. However, the Court of Appeal made it clear that employees should not be held to the same standard as directors in this regard.
Ranson is a reminder to employers that the best way to protect business interests is through express contractual provisions. Whilst confidentiality provisions and restrictive covenants may be commonplace, employers should also consider inserting a provision requiring an employee to report his or her own wrongdoing, as well as the wrongdoing of others.