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Do employees owe their employer a fiduciary duty?

Only in limited cases, according to the Court of Appeal.

Last week the Court of Appeal allowed an appeal against the High Court’s decision that an employee (who was not a director) owed a fiduciary duty to his employer.

Mr Ranson resigned from Customer Systems plc (“the Company”) and set up his own business whilst still employed by the Company. Some of the work he undertook in his new business arose from discussions which took place during his notice period with the Company. The Company alleged that by failing to declare these conversations to them, Mr Ranson had breached his fiduciary duty.

The High Court concluded that Mr Ranson, though not a director, did have a fiduciary duty towards his employer. The Court of Appeal overturned this decision and determined that employees need to be distinguished from directors.

Directors owe a fiduciary duty to their companies by virtue of their directorship and the Companies Act 2006. In contrast, employees will only owe their employers a fiduciary duty if their contract of employment provides for one. In the present case, Mr Ranson’s contract only required him to do his job faithfully and to comply with the implied duty of trust and confidence. This did not create a fiduciary duty.

The Court of Appeal made it clear that when determining whether an employee owed its employer a fiduciary duty the starting point must be the terms of the contract and that this duty would not be automatically implied.

Furthermore, the Court of Appeal indicated that even if an employee was found to owe a fiduciary duty, it would not automatically be at the same level as a director. It noted that it was not the case that a “one size fits all”.

Going forward, employers need to be careful that their contracts clearly state what obligations an employee is under if they wish to create a fiduciary duty, for example, by creating an obligation to promote the company’s interests whilst employed by it and to not undertake work at any time, paid or otherwise, whilst employed by the company. With this in mind, it is important to make sure that employees are issued with new contracts as they progress within an organisation. In Mr Ranson’s case his role had changed and he had progressed through the organisation but his contract had not been updated to reflect his seniority.

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