Duties owed by employees to their employer

Ranson v Customer Systems Plc [2012] EWCA Civ 841

Facts

Mr Ranson joined Customer Systems Plc (“CS”) in 2001 and was promoted to divisional manager in 2008. Mr Ranson’s contract of employment contained no post-termination restrictive covenants but his contract did require him to keep “information of a confidential nature belonging to CS, its customers and its business partners” that he was exposed to during his employment confidential, and not to undertake any other employment while employed by CS without its prior written consent.

In 2007, Mr Ranson set up Praesto Consulting UK Ltd (“Praesto”), though did not undertake any work with this business. In January 2009, Mr Ranson resigned his employment with CS. Mr Ranson’s notice was due to expire on 13 February 2009, but he agreed to remain until 27 February 2009 in order to complete work securing a contract for CS. During his notice period, Mr Ranson had discussions with clients of CS about Praesto.

As a result of this, CS brought claims for breach of contract, arguing that Mr Ranson was in breach by setting up Praesto and seeking business for Praesto whilst in employment with CS. Relied upon were common law – not express contractual – principles, being the duty of fidelity (which would include a duty not to compete with the employer) and fiduciary duties. Fiduciary duties, it is well established, are owed by directors to their companies, but CS claimed that such was the nature of Mr Ranson’s position, he also owed these duties to CS.

The High Court held that Mr Ranson had a duty of fidelity and also owed fiduciary duties to CS and that his conduct had breached both duties. Mr Ranson appealed.

Decision

The Court of Appeal (“CoA”) allowed the appeal and found that Mr Ranson had not owed a fiduciary duty to CS and that he had not broken his duty of fidelity.

Firstly, it examined the concept of fiduciary duties. The CoA observed that directors not only owed fiduciary duties under common law, but these were also partially codified under the Companies Act 2006. These duties did not apply to employees merely by reason of their role. The starting point in determining the duties owed by an employee to their employer is by viewing the contract of employment. Fiduciary duties cannot be “superimposed” onto a contract if they do not exist within the employment contract itself. Even if there are such duties, they cannot be taken to be analogous with established directors’ duties, given the differences between the two positions. Accordingly, in the absence of any contractual terms providing for fiduciary duties, Mr Ranson was not subject to any fiduciary duty and could therefore not be in breach of a duty he did not owe to CS.

Unlike fiduciary duties, the CoA held, the duty of fidelity exists in a contract of employment, either in express or implied terms. The duty to carry out the job faithfully was implied within Mr Ranson’s contractual terms. However, the factual nature of the discussions conducted with the clients of CS and the subsequent events did not breach this duty of fidelity. The CoA usefully gave guidance that this duty of fidelity required an employee to have regard to their employer’s interests, but did not require an employee to subjugate their interests to those of the employer.

Comment

Once again, the importance of the contract of employment is emphasised by this case. Employers will encounter difficulty in attempting to rely on terms that are not express within the contract and must make clear and appropriate provision for post termination protection. The courts seem to have little enthusiasm for implying duties as incumbent on employees if an employer has not seen fit to include these within the contract of employment which, after all, is intended to govern the agreement between parties. Contracts should be appropriately drafted for all levels of employees, and if an employee is promoted, suitable updated terms are entered into.