Weekly Employment Update - 25th January 2012

Welcome to Ashfords' Weekly Employment Update, where each week we consider recent developments in Employment and HR issues. This week we consider the steps employees wishing to set up in competition may legitimately take to do so while still employed.

In Customer Systems Plc v Ranson an I.T. consultancy brought claims against a number of former employees who had left to set up or work for a rival business.

The High Court held that one of the employees in question had been entitled to plan for the future, to set up a company in competition and create business plans, and he had not been obliged to inform his employer of this. In addition, he was entitled to see what opportunities there were for the new company, in a general way.

However, taking account of the employee’s position (that of senior sales manager) he had certain fiduciary duties to his employer. In addition, every contract of employment contains an implied term that an employee will serve their employer with good faith and fidelity. As such, the employee had breached his fiduciary duties and the duty of fidelity when he applied for work, failed to tell his current employer of the opportunity he had obtained for an order, extracted business contacts from his mobile phone and used the numbers for the new company’s benefit and copied the invoices, time sheets and order confirmations and used them as templates.

The employee had also offered a colleague a position in the company he had set up. Customer Systems Plc argued that this other employee had failed to alert it as to the existence of the company and had breached the duty of fidelity. However the High Court held that an employee who becomes aware of confidential matters relating to competition from a potential new employer is under no obligation to pass this information to his existing employer, as this would mean he would be in breach of confidence to his new employer.  A duty of fidelity to an existing employer would not necessarily defeat a duty of confidence to a new employer.

The High Court's decision is comforting for employers, showing that employees who wish to leave their current employer in order to set up in competition will face difficulties if they wish to take steps while still employed. Conversely, it will be reassuring for employees that wish to seek new employment to know that they will not come under a duty to inform their existing employer of what they have learnt in confidence when doing so.

Customer Systems Plc v Ranson, Atherton, Edmond and Offland [2011] EWHC 3304

Ashfords LLP is Authorised and Regulated by the Solicitors Regulation Authority. The information in this note is intended to be general information about English law only and not comprehensive. It is not to be relied on as legal advice nor as an alternative to taking professional advice relating to specific circumstances.