The Court of Appeal has decided that a senior employee did not
owe a fiduciary duty or a duty of fidelity when he set out to
compete with his employer.
Mr Ranson started his employment with Customer Systems as the
lowest grade employee at the firm. By the time he left he was at
the most senior grade in the firm and responsible for 59% of the
firm's revenues but his contract of employment had not been
amended throughout this 8 year period. His contract did not contain
any post-termination restrictive covenants preventing him from
poaching employees, clients or suppliers after the termination of
During his employment, Mr Ranson set up a company called Praesto
which was intended to compete with Customer Systems. He did not
carry out any work for Praesto but he did draft a business plan. He
resigned as a result of a break-down in discussions with Customer
Systems regarding his future career path. At Customer Systems'
request, he extended his notice period by an additional 14 days in
order to help them secure a new contract. During this 14 day
period, Mr Ranson signed an order on behalf of Praesto with a
Customer Systems' client and dined with another Customer
The High Court decided that Mr Ranson was in breach of the duty
of fidelity implied into every contract of employment and in breach
of his fiduciary duty under which he owed 'a single-minded duty
of loyalty' to his employer. The Court of Appeal disagreed.
They analysed fiduciary duties in employment contracts and
concluded that an employment relationship is not usually a
fiduciary one which required the individual to place his
employer's interest ahead of his own. The Court of Appeal
commented that some senior employees will owe a fiduciary duty to
their employer akin to the duty owed by directors to their
companies but that such obligations entirely depend on the wording
in the contract of employment.
The Court of Appeal said that Mr Ranson was not obliged to
report his own wrongdoing and that the duty of fidelity implied
into employment contracts did not result in undivided loyalty to
Mr Ranson's actions did not have a substantial impact on
Customer Systems' client base and revenue. Based on the facts
of the case, Mr Ranson's actions were not considered to be
wholly inappropriate and this helped his credibility before the
court. The case highlights the importance for employers to update
contracts of employment when employees are promoted so as to ensure
that express fiduciary duties and new job descriptions are added or
amended as appropriate. Employers should also consider whether
post-termination restrictive covenants are needed to protect the
business should a valued employee leave.
In October 2012, the Court of Appeal confirmed that a Service Provision Change ("SPC") TUPE transfer can only occur where the client who receives the service, before and after the change, remains the same (Hunter v McCarrick  EWCA Civ 1399).