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Recent case law on an employee’s duty of fidelity

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Posted by Matthew Goodwin on 05 March 2014

Matthew Goodwin - Tax Disputes Lawyer
Matthew Goodwin Associate-Solicitor-Advocate

The case of (1) Thomson Ecology Ltd and (2) Thomson Unicomarine Limited (“Thomson”) v (1) APEM Ltd (“APEM”) (2) Unicomarine Limited and Mr David Hall (“Mr Hall”) considered whether an employee had breached his duty of fidelity in failing to advise his existing employer of a threat being posed by a competitor and in assisting the competitor to recruit other employees whilst on his notice period.  

Background

Mr Hall worked for Thomson. He was a senior member of staff but was not a director. In November 2012, Mr Hall gave one months’ notice that he intended to leave Thomson. Before giving his notice, Mr Hall had signed a contract of employment with APEM, a direct competitor of Thomson. 

After Mr Hall signed the contract with APEM, 17 other staff also left Thomson to work for APEM. APEM also incorporated a company called Unicomarine Limited and also registered domain names including that name. Thomson’s case was that Mr Hall and APEM had colluded to transfer business to APEM. 

Thomson sought summary judgment on the grounds that Mr Hall had no real prospect of defending a claim that he had breached his contractual duty of fidelity and that APEM had no real prospect of defending a claim that it was seeking to pass itself off as Thomson.

The claim against Mr Hall

Thomson alleged that Mr Hall had broken his contractual duty of fidelity (which is an implied duty of loyalty which forms part of a contract of employment) The key complaints were that Mr Hall had actively participated in APEM’s recruitment of Thomson’s staff whilst he was still employed by Thomson. In addition, he had failed to inform Thomson of the threat posed to its business by APEM. 

The judge took into account the fact that Mr Hall had overall control of the operations of Thomson at the site at which he was based. The contract of employment also contained an obligation that Mr Hall would have fortnightly update meetings with his superiors, where matters like this should have been discussed. He therefore considered that Mr Hall’s duty of fidelity did include advising his employer of a potential threat to the business. The actual steps by Mr Hall to recruit for APEM were an even clearer breach. Mr Hall had no real prospect of defending the claim. 

The claim against APEM

The only argument in relation to the claim against APEM was that APEM argued that no actual damage had been suffered by Thomson because APEM had agreed to transfer the domain names to Thomson and dissolve the company.  The judge disagreed and was satisfied that the registration of the domain names and incorporation of the company constituted actionable passing off, as potential damage could be proven. The claimant was therefore successful in obtaining summary judgement against APEM. 

Conclusions

Regard has to be had to the seniority of and contractual obligations upon an employee in considering the protection a company can expect from the courts in circumstances where an employee has not provided details of a potential threat to the business in considering whether the employee has breached his/her duty of fidelity. 

In this case, despite Mr Hall’s seniority within the company, he had no post-termination restrictive covenants which would have sought to prevent him poaching staff. Had he therefore waited until after he had left Thomson before doing so, Thomson would have faced great difficulty in bringing a claim.  

About the author

Matthew Goodwin

Associate-Solicitor-Advocate

As an associate within the tax and financial services litigation team, Matthew regularly acts for corporates and individuals, dealing with a variety of disputes.

Matthew Goodwin

As an associate within the tax and financial services litigation team, Matthew regularly acts for corporates and individuals, dealing with a variety of disputes.

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