THE Implied DUTY OF Fidelity PDF

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Katy McFarlane lecturer...

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THE IMPLIED DUTY OF FIDELITY Fidelity = good faith Every employee has to treat his/her employer with good faith and honesty on a very simple level. For example, if you work in Starbucks and take sugar home - this is not acting in good faith. This is a mutual obligation: Malik case: the bank was considered to be corrupt and the employees were worried that they would be considered dishonest when they went for different jobs. Bank was under a implied obligation not to engage in corrupt business. Where there is a breach? Could lead to summary (instant) dismissal. What if employee decides that they will take something and replace it borrowing as such? Sinclair case: Mr S took £15 from till of the better shop he managed in. He placed a bet in a different betting shop with this. He knew his employer would say no but he borrowed it with the intention to return it. He was dismissed on basis of dishonesty and breach of fidelity. It was held that he was entitled to summary dismiss S. S claimed that he had not breached because he borrowed the money and intended to return it. It was held that he was unfairly dismissed as he was not dishonest. However, his employer was still entitled to dismiss him on the basis that their relationship had been destroyed over this: there was no mutual trust.

A. Duty to disclose misconduct: 1. Your own misconduct: general rule is that implied duty of fidelity does not impose a duty on his/her employee to disclose his/her own misconduct.  Bell v Lever Brothers case: chair and vice chair of company's positions ceased to exist and they were paid compensation. It was revealed that they had previously secretly entered into transactions whilst serving as chair and vice chair. Had this been known they would have been dismissed. This was revealed after their compensation was paid.  Lever brothers raised a claim to have the compensation paid back.  Held that there was no duty for them to have disclosed their own misconduct. PRINCIPLE: NO DUTY TO DISCLOSE OWN CONDUCT 2. Others misconduct:

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Sybron Corp v Rochem Ltd: R was manager and he was involved in a conspiracy with others to set up another company. Sybron refused to pay his pension over finding this out. Held that Sybron was entitled to recover some money There was no duty of manager to disclose his OWN misconduct and there was no general duty to disclose a fellow employees conduct. However, due to being a manager - he had a duty to disclose the misconduct of other employees, even if it incriminated himself.

Why not a duty in Bell case? They should have disclosed the behaviour of each other? No. Depends on circumstances of the case. There may be a duty and may not be: GENERAL PRINCIPLE: DUTY FURTHER UP HEIRACRHY YOU GO B. Working for another employer There may be an express term prohibiting employee for working for a second employer. This is a valid clause and can lead to breach and dismissal. No express term: free to work for another employer in spare time. If there is no express term does that mean that you can work for a competitor of your employer in spare time? Hivac case: 2 employees of Hivac working for a direct competitor in their spare time. Hivac brought an action of injunction to restrain the other company from employing the two men. No evidence that there was any misconduct going on. Injunction was granted. Interesting because: there is no express term saying they can't. The nature of the work was the deciding factor in this case. Therefore again it is decided on a case by case basis. If you are a legal sec and work for two different law firms: conflict could arise if one client is against one client from each firm you are working for. Case: Sanders v Parry Sanders was a solicitor and they employed Parry as an assistant solicitor. There was a client (Mr T) who Parry was working for. They decided together that Parry would leave the firm he is working for and Mr T would bring him business. Argued that he had breached good faith and fidelity. It was held that he had because their agreement had took place during the existence of his employment and he had not informed Sanders. Nova Plastics v Froggatt Froggatt was an odd job man who worked for NP and another company. NP dismissed him when they found out he was working for another company. He filed for unfair dismissal and it was held that this was unfair dismissal. The position he was in meant he would not be able to get any information which could effect either company - he was just an odd job man.

Moonlighting job: doing another job alongside your other job.  This may not be acceptable if you are not able to fulfil your duties in work due to being tired for example. When does the duty of fidelity to an employer end? When the contract of employment comes to an end: the duty comes to an end. Restrictive covenant: has to be expressed. This is when employer is restricted from utilising their information/contacts for a certain period of time in a certain area. It has to be shown that it is necessary to protect the business to be valid. It also has to be reasonable. DUTY of fidelity to an employer ends when contract of employment ends unless there is a restrictive covenant, then it ends after this ends. Sadler case There was a thing called a deferred remuneration scheme which meant he would receive payment upon termination. He went to work for a competitor after this and employer said no: you are due to receive commission and until then cannot work for a competitor. Held unlawful and unenforceable. Wessex Dairies Ltd v Smith Mr Smith worked for WD and on his last day he asked customers to be his customers when he started his own dairy business. WD pulled him up on it saying he had breached fidelity as this was done in the course of his employment. It was held to be a breach. Mr Smith was just a normal employee. Things are slightly different when a person is a director…not just an employee of a company.

Directors = have a Fiduciary duty This means that there is a duty to maintain confidentiality, undivided loyalty and no conflict. Also a duty to promote success of the company and declare any interest in a proposed transaction or agreement which goes against the business. Sometimes very senior employees will also have this duty due to the nature of the high level that they sit in the hierarchy. They might be written into their contract of employment.

Current state of play regarding the duty of senior employees is summed up in case of: Customer Systems plc v Ranson Mr R was a senior sales manager with CS. He set up a rival company and some of the employees shifted to this new company. CS claimed that R breached fidelity and good faith but also copied their invoices to use this template and encouraged others to move with him ", he was under a fiduciary duty not to use them for any purpose contrary to CS's interests…". They claimed he also breached a restricted covenant that was in place. It went to Queens bench and it was held that he was in breach of fidelity because he was under a fiduciary duty but restrictive covenant was unreasonable so was not enforceable. He claimed he did not breach fiduciary duty because he was not a director: just a senior employee. A fiduciary duty was not expressed in the contract. Current situation: if you are an employee you do not have a fiduciary duty you must be a director. However, you can have a fiduciary duty if you are a very senior employee but only if this is expressed in the contract. Confidential Information and Trade Secrets The leading case is: *Faccenda Chicken Ltd v Fowler Mr F worked as sales manager for FC. He headed a team of sales people who went around the area and sold chickens. They got to know the customers and area well as well as prices etc. and everything about the sales runs. Mr F left and set up a similar business and 8 employees left FC and joined him. FC claimed that they were using confidential information to benefit the new business. Held: info in question did not relate to any trade secrets in FC. They only knew area they sold in, prices and customers: none of the info was confidential as such. NO breach of good faith and fidelity duty. When deciding whether there is a breach of confidential information you need to look to the taking of information: your position in the hierarchy and the actual information. Case by case basis. What might be considered a trade secret? Trivial information that is easily accessible is not a trade secret/confidential information. Confidential information that cannot be disclosed to outsiders during course of employment is confidential information. You will likely be told what is confidential information. Trade secrets: so confidential that they cannot lawfully be used for anyone's benefit except the employers even after leaving employment.

Can an employee disclose confidential information that discloses the misconduct of the employer? Initial Services v Putterill [1968] 1 QB 396  Suspicion of employee that employer was acting in a corrupt way  He resigned and disclosed information to the National newspapers  Initial services raised an action for breach of implied duty of fidelity  It was held that there was no breach because it was in the public interest for this information to be disclosed as it revealed the misconduct of his employers.

Lord Denning, MR stated (at 405): “The disclosure must, I should think, be to one who has a proper interest to receive the information. Thus it would be proper to disclose a crime to the police; or a breach of the Restrictive Trade Practices Act to the registrar. There may be cases where the misdeed is of such a character that the public interest may demand, or at least excuse, publication on a broader field, even to the press.” Remedies Where an employee has breached duty of fidelity by disclosing confidential information: an employer may have a variety of remedies at his/her disposal.  

Remedy of damages Remedy of interdict o PSM International v Whitehouse [1992] IRLR 279  PSM (employer) successfully obtained an injunction to prevent a former employee fulfilling contracts that he had entered into with former customers of the employer.  Alleged that the orders had been obtained by use of information which belonged to the employer and which amounted to trade secrets.

Intending to compete - what happens when an employee intends to compete with his/her employer? Sanders v Parry case

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S was solicitors and P was an assistant solicitor. Mr P working for Mr T who was a client of S. Together T and P decided that P would leave S and T would transfer all of his legal work to T's new firm. S raised an action that P breached duty of fidelity He claimed Mr T initiated the move not P It was held that P had breached implied term of good faith because it had taken place during course of employment and P had not informed S of his intentions.

Robb v Green [1895] 2 QB 315  In this case employee copied list of employers customers names and addresses with the intention of using this information once he left the employers employment.  Held that employee had breached the implied obligation and employer obtained both an injunction and damages as a result. Whitmar Publications Ltd v Gamage [2013] EWHC 1881  Employees resigned and it was then found that they had used confidential information and set up a new business which was in the process during the course of employment.  Claim raised for breach of duty of fidelity AND fiduciary duties.  It was held that there was a breach in this case BUT the defendants had not breached their fiduciary duties as they were only employees. What happens if the employee is unaware that he or she is using confidential information? Vestergaard Frandsen S/A v Bestnet Europe Ltd [2013] UKSC 31  G and L were both former employees of V and they set up a company in competition.  While they were employed G had been working for a consultant S who had been developing a new product for G and L's new company.  V claimed product was being developed using confidential information from V's company  Held at first instance that G was liable for breach of confidence relating to the misuse of confidential information  G appealed against that saying she had not realised it was confidential information.  Held she had not breached duty of confidentiality as she had not been aware the information was confidential

Employer’s duty not to breach confidential information? Dalgleish v Lothian and Borders Police Force 1992 SLT 721  Employees sought an injunction to prohibit employers from disclosing names and addresses of those who had not paid their community charge  Held to be confidential information that could not be disclosed without their consent...