Employers and employees owe each other an implied contractual duty of mutual trust and confidence. Employers must not without reasonable and proper cause, conduct themselves in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between the employer and employee. Employees, for their part, must serve their employers loyally and not act contrary to their best interests. Breach of the duty by the employer may amount to a repudiatory breach of the employment contract, entitling the employee to resign and claim constructive dismissal. A repudiatory breach of contract may also release the employee from any further obligation to the employer under the contract of employment.
RDF Media Group plc (‘RDF’) entered into a Sale and Purchase Agreement (‘SPA’) for the purchase of IWC Media Limited (‘IWC’). Mr Clements was a shareholder of IWC as well as one of its directors. Under the SPA, he entered into restrictive covenants with RDF, one of which was a three-year non-compete obligation, in exchange for almost £2 million in cash and shares. Just sixteen months into the agreement, Clements divulged confidential information to a competitor of RDF, Scottish Media Group plc (‘SMG’), which he intended to join. RDF sought to enforce the restrictive covenant against Clements, who counterclaimed for constructive dismissal on the grounds of damaging remarks made to the press by RDF’s managing director which, he alleged, were in breach of the implied duty of trust and confidence. The High Court found that Clements was still bound by his restrictive covenants and had not been constructively dismissed, holding that although the statements made to the press were capable of amounting to a breach of the implied duty of trust and confidence, an employee who has already breached his duty of trust and confidence towards his employer cannot rely on the employer’s subsequent breach to found a claim of constructive dismissal. The Court took the opportunity to consider the extent of the duty of mutual trust and confidence and found that: (i) the duty still exists when an employee is on garden leave, although it may be diluted, depending on the facts; (ii) there is no breach of the duty where a board of directors discuss an employee in a negative way between themselves; (iii) the burden lies on the employee to prove any breach; and (iv) when assessing whether there has been a breach, it is the impact of the employer’s behaviour rather than his intention which is relevant, and regard must be given to all the relevant circumstances including the fact that an employee is himself in repudiatory breach.
Effect on employers
Although employers should generally welcome this decision, the case highlights the need to be vigilant when releasing statements about employees who resign or go on garden leave, especially where the employee is senior or holds confidential information and the employer wishes to rely on restrictive covenants. Releasing negative comments about departing employees can amount to a repudiatory breach of contract and may discharge the employee from further obligations owed to the employer under the employee’s contract of employment, including post-termination restrictions.