Or, in the case of Customer Systems v. Ranson & others, of employees.
The High Court has held that two former employees of Customer Systems (CS) breached their implied duty of fidelity, as well as fiduciary duties, in the process of establishing a company to compete with their former employer.
Mr Ranson was a divisional manager of CS, a sales role which included wider responsibilities. Mr Offland was a consultancy manager of CS, a role which also involved sales as well as supervisory responsibilities. Both employees had confidentiality and "no other employment" clauses in their contracts. Mr Offland also had a non-solicitation clause.
A year before resigning from CS, Mr Ranson set up Praesto Consulting UK Ltd (Praesto) and, whilst he undertook various administrative, accounting and business planning tasks, no work was done. He did however contact a CS client, Oracle, concerning possible work for Praesto.
Mr Ranson resigned from CS in January 2009 and worked his notice in February 2009. Mr Offland resigned from CS in March 2009 and joined Praesto in April 2009.
During his notice period Mr Ranson contacted a former CS contact, Diageo, and obtained work for Praesto. He also took another CS client, AstraZeneca, to dinner obtaining an offer to help find work for Praesto and forwarded himself by email business-related contacts from his CS mobile phone.
Mr Offland, similarly, provided Praesto with assistance in drafting a proposal to AstraZeneca whilst he was working his notice with CS.
CS brought claims that each former employee had breached their duty of fidelity and fiduciary duties. The High Court agreed and held that whilst Mr Ranson was entitled to plan for the future, set up Praesto, open bank accounts and create business plans he was not entitled to seek and obtain work from CS clients or use business contacts taken from the CS mobile phone for purposes contrary to CS's interests. The High Court also held that Mr Offland had been in breach of a fiduciary duty and the duty of fidelity in providing assistance to Praesto during his notice period in relation to the draft proposal to AstraZeneca.
Best Practice
The case illustrates that employees who intend to set up in competition to their existing employer can undertake purely preparatory tasks (for example setting up a new company and writing business plans) without breaching their obligations to their employer. However, if they cross the line to actively soliciting business it is likely that their existing employer will have a cause of action against them.
Companies will be assisted in protecting their position by ensuring contracts include properly worded restrictions on the employee's activities during and after employment.
For more information, please contact Colin Godfrey on 020 7665 0839.
This publication is for guidance only. Reliance should not be placed upon it and nor should action be taken, without obtaining advice in respect of the specific circumstances applicable. We will be pleased to provide such advice or assistance.
