Duty of fidelity and fiduciary duties

23 Jul 2012

Ranson v Customer Services Plc.

In every employment contract there is an implied term that an employee will serve their employer with good faith and fidelity (i.e. the employee has a legal obligation to act in the best interest of the employer).  Generally, this implied term only lasts for the duration of the employee's employment, although for Directors and employees who hold a position of seniority, this duty may continue past the date of termination.

In a recent case, the Court of Appeal found that an employee did not owe a fiduciary duty to his employer.  The Court found that the employee was not in breach of the duty of fidelity when he chose not to inform his employer that he had conducted meetings with clients to discuss his new business plans during his notice period.

In this specific case, Mr Ranson was a divisional manager of the company in which he worked.  Mr Ranson had no post-termination restrictive covenants included within his contract.  The contract required Mr Ranson to keep 'information in a confidential nature belonging to [his employer]' and not to undertake additional employment whilst employed without prior consent.

A year before leaving his employer, Mr Ranson set up a company, for which he opened a bank account and drew up business plans but did no work.  Mr Ranson resigned and agreed to work his six week notice period.  During this notice period he entered into discussions with a former contact.  The contact gave Mr Ranson's new company ten days' work.  In addition, he took another client of the previous two years out for dinner.  Although no work was discussed over this dinner, the contact did offer to help Mr Ranson find work.

The Company brought claims against Mr Ranson on the basis that he had breached his fiduciary duty by setting up a company whilst still employed and by seeking to obtain business in competition with his employer.  The Company claimed that he was in breach by failing to inform them of what he was doing during his notice period.

The Court of Appeal found that the contractual obligation of fidelity and the existence of any fiduciary duty should be determined by the employee's contract of employment.  The Court of Appeal found that fiduciary duties which are inconsistent with the terms contained within the employment contract would not be upheld.  Furthermore, the Court of Appeal held that the implied duty of mutual trust and confidence could not be relied upon to indicate a fiduciary relationship.  It found that, in any case, the extent of the duty would be determined by the employment contract of the employee.

Our view:

It is important for all employers to ensure that contracts of employment and job descriptions cover the expectations of the employer and the employee to ensure that the employer has adequate post termination protection. Additionally, it is important that the employee's contract and job description are kept up to date as they take on new roles or are promoted.