All employees have an implied duty of fidelity towards their employer, which includes the duty not to compete.
For more senior employees, this duty continues after employment has ended. In certain circumstances, employees will also have fiduciary duties which mean that they are under an obligation to act solely for the benefit of their employer rather than for their own interests. In Customer Systems plc v Ranson and Others, the High Court looked at the extent of the duty of fidelity and fiduciary duties where an employee had set up a competing company during his employment.
Mr Ranson set up the new company, Praesto Consulting, whilst still employed by Customer Systems as a senior sales manager. Following his resignation, but whilst working out his notice, Mr Ranson emailed himself certain information for use by Praesto, including clients' phone numbers, invoices and timesheets. During his notice period he also obtained an order for Praesto through a former Customer Systems contact, and discussed the possibility of obtaining work from a Customer Systems client. Another employee, Mr Offland, also resigned from his sales role at Customer Systems to join Praesto and did some work for Praesto during his notice period. Both employees were subject to an express confidentiality clause which extended beyond employment, and a clause which prohibited other work without prior permission, but were not bound by other post-termination covenants.
The High Court held that Mr Ranson was entitled to set up Praesto and to create business plans for it without telling his employer. However, as a senior sales manager, he was in a fiduciary position towards Customer Systems. He had breached this fiduciary duty when he obtained work for his own benefit without informing his employer of the potential opportunities, and when he took clients' contact details and other documents to use for purposes which were contrary to the interests of his employer. Mr Offland also had fiduciary duties when he helped Mr Ranson to seek business for Praesto from a client whilst still employed in a sales role. He should also have informed Customer Systems of that opportunity. The Court commented that if Mr Offland had done nothing to assist Praesto to compete with Customer Systems, he would have been entitled to receive information about Praesto and its prospects without having a duty to disclose it. It was held that both employees had also breached their duty of fidelity.
This case provides helpful guidance on the preparations which employees can undertake to set up in competition with their current employer. It is also a reminder of the importance of protecting a business by including appropriate restrictive covenants in contracts of employment.
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