- Does an Employee owe Fiduciary Duties?
- October 15, 2012 | Authors: Peta-Anne Barrow; Daniel Ornstein
- Law Firm: Proskauer Rose LLP - London Office
Not in the case of Ranson v Customer Systems PLC.
Mr. Ranson was employed by Customer Systems PLC from 2001 to 2009. He held a senior position at the time he left but was not appointed as a statutory director of the company. Both before and during his notice period Mr. Ranson made preparations to set-up a competing business, Praesto Consulting (UK) Ltd. He was not subject to post-termination restrictive covenants contained, so Customer Systems PLC was unable to rely on those to protect itself. Instead, Customer Systems PLC alleged that Mr. Ranson had breached duties of fidelity and loyalty by not telling it that he had had dinner with a client in February 2009, shortly before leaving the company, where future work for Mr. Ranson was discussed. The High Court held in the company's favour and ruled that Mr. Ranson has breached his contractual duty of fidelity and loyalty. Mr. Ranson then appealed to the Court of Appeal.
The Court of Appeal distinguished employees from directors and held that while all directors owe fiduciary duties to their companies, only some employees owe similar duties where these are created in a contract of employment. The Court of Appeal upheld Mr. Ranson's appeal and found that he was neither liable contractually nor as a result of a breach of a fiduciary duty in respect of the incident complained about. Mr.Ranson was entitled to prepare to set up his own business and did not have a contractual obligation to report his own wrongdoings to his employer. Thus there was no breach of contract. Further, Mr.Ranson was not in a position of fiduciary responsibility. Such obligations did therefore not apply to him.
What does this mean for you?
Where someone has fiduciary duties, they are required to disclose both their own wrongdoing as well as that of others in respect matters falling within the scope of those duties. However, as this case demonstrates, there is uncertainty both as to whether an employee has fiduciary obligations and the scope of those duties. An express contractual term requiring such disclosure of wrongdoing avoids this uncertainty: it would have greatly assisted Customer Systems PLC.