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Employee Fiduciary duty.When is it owed?

July 7, 2012

A recent case of Ranson v Customer Systems plc  [2012] EWCA Civ 841 examined when a employee would owe a fiduciary duty. In this case, the Claimant resigned from the company and set up his own business whilst employed during his notice period.  He used some information gleaned from conversations during that period.  The Claimant alleged that he had, by failing to declare these conversations, breached his Employee fiduciary duty.

Before and during the expiry of his notice period the Defendant made preparations for the establishment of a competing business. He had no post-termination restrictive covenants contained within his contract of employment so the Claimant was unable to object to the establishment of the competing business. However, the Claimant did object to the Defendant not telling it that he had had dinner with a client 2 days prior to his leaving where future work for him was discussed. The Claimant asserted that this was both a breach of the contractual duty of fidelity and the fiduciary duty of loyalty.

The High Court agreed that although he was a director, he did owe a fiduciary duty to his employer.

The case went to the Court of Appeal.  The court stated that directors do owe a fiduciary duty to their companies by virtue of their directorship and the Companies Act 2006.  Employees, however, owe no fiduciary duty to the company unless it is stated in their contract of employment.  In this case, Mr Ranson’s contract only required him to do his job faithfully and to comply with the implied duty of trust and confidence.  This did not create a employee fiduciary duty.

The Court of Appeal made it clear that the starting point as to whether or not an employee owes a fiduciary duty,must always be in the contract of employment.  The court also stated that even if they found that there was a fiduciary duty, it wouldn’t necessarily be at the same level as a director.

For employers, therefore, it is important that if you wish to protect yourselves, you need to have a strongly worded contract of employment to do so.  It needs to state exactly what the employee’s obligations are, and if necessary, as the employee is promoted and becomes more senior, new contracts with new duties need to be drafted.

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