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When is an employee a fiduciary?

Tuesday, 20 March 2012

A recent High Court decision has highlighted when a fiduciary duty might be owed by employees to their employers. In Computer Systems plc v Ranson & Others, the claimant sued former employees for £1 million in damages for setting up a rival company while under its employment. The court examined alleged breaches of contractual duty of fidelity, fiduciary duty and a restrictive covenant.

In 2007 Ranson incorporated a company, Praesto, to establish an IT consultancy in competition with his employer Computer Systems. Praesto did not actively engage in business until 2009 when Ranson had left Computer Systems. However, prior to his departure Ranson pitched for orders from Computer Systems’ customers in the name of Praesto, failed to notify his employer of these orders and took business contact details from his company phone. He also discussed the new business with a Computer Systems colleague, Offland, who assisted with Praesto’s tenders.

The Duty of Fidelity
Computer Systems claimed that Offland and a junior employee, Edmond, had breached their duty of fidelity for failing to notify it about the existence of Praesto. The court held that a duty of fidelity did not necessarily overcome a competing duty of confidence owed to a prospective employer because a requirement to disclose information would prevent employees from being able to move freely between jobs. Separately, in taking orders from Computer Systems’ customers, it held Ranson and Offland had breached their duty of fidelity.

Fiduciary Duties
Generally an employee is not under a fiduciary duty simply due to their employment under a contract but Computer Systems claimed that both Ranson and Offland did owe it fiduciary duties. In its decision the court identified four circumstances where a fiduciary duty might arise in the context of employment:

  1. Where the employee is a director;
  2. If the employee is holding money or other property of the employer;
  3. By virtue of their position being akin to director;
  4. In relation to particular aspects of their employment dependent on circumstances.

Although Ranson and Offland were not directors, both had fiduciary duties regarding particular aspects of their employment at Computer Systems. The relevant circumstances were Ranson’s position as a divisional manager and top salesman and Offland’s assistance with Praesto tenders. Ranson was also in breach for taking business contacts from his Computer Systems phone.

Restrictive Covenants
The court held that the restrictive covenant in Computer Systems’ employment contracts was unreasonably wide in respect of the employees’ work and their level of client contact and was therefore unenforceable.
If you would like more information regarding fiduciary duties or any other Employment matters, experienced lawyers has experienced lawyers who can advise you. Please contact Aneil Balgobin via e-mail or by telephone on 0207 611 4848.