Court of Appeal further defines circumstances in which employees will be subject to fiduciary duties

July 2nd, 2012 by Julian Wilson

When and how an employee may be subject to fiduciary duties is a question which both Judges and practitioners and have found it difficult in practice to discern.

In its judgment in Ranson v Customer Systems plc [2012] EWCA Civ 841, last week, the Court of Appeal addressed how a court should go about ascertaining, in the circumstances of each case, whether an employee owed fiduciary duties and the scope of any such duties owed. It did so by a careful analysis and application of the existing case law but I concentrate below on the approach it derived from those cases.

The proper approach

The CA disapproved of drawing analogies with Company Directors and using the Director cases to discern the duties owed. Companies are artificial persons which can only act through human agents – the Directors. The Directors exercise the Company’s powers and are treated as trustees of its property.  For those reasons, they are in a fiduciary capacity in which they have to put the interests of the Company, for which they act as agent, before their own interests. 

Employees are not in such a fiduciary capacity. Any powers imposed on the employee are conferred by the employer under the employment contract. Whether they give rise to a fiduciary duty depends on the terms of the contract. It is the contract which should be the starting point of the analysis. The question is whether there are any specific contractual obligations which the employee has undertaken which have placed him in a situation where equity imposes a fiduciary duty, rigorously restricting his freedom to act in his own interests by requiring him to put his employer’s interests first, in addition to the contractual obligation.

No surrogates

Neither the implied duty of fidelity nor the implied duty of trust and confidence can be used as surrogates for fiduciary duties because:

The scope of the duty of fidelity derives from the terms of the contract.  Unlike the fiduciary duty of loyalty, the duty of fidelity is not a duty to act in the interests of another. It is one where each party must have regard to the interests of the other, but not one where either must subjugate his interests to those of the other.

The trust and confidence term is an incident of every contract of employment by implication of law. As not every contract of employment gives rise to a fiduciary relationship, it is clear that reliance on the trust and confidence duty cannot of itself give rise to fiduciary obligations.


Take the matter of business opportunities coming to a person’s attention. Whilst a director’s fiduciary capacity dictates that he must put the Company’s interests first and give to it the benefit of every opportunity he learns of falling within the scope of its business, an employee does not in general promise to give his employer the benefit of every opportunity falling within the scope of its business unless he owes a specific contractual duty to secure the work for the employer.

Take the duty to disclose one’s own misconduct. Whilst a director’s fiduciary capacity may dictate that he must disclose his own wrongdoing as part of his fiduciary duty to act in what he considers in good faith to be the best interests of his Company, an employee is not generally obliged to disclose his own misconduct.

Whether the employee has duties to bring business opportunities to his employer’s attention or to disclose his own wrongdoing will depend on the terms of the contract.


The decision in Ranson is likely to lead to a far more analytical approach to the question of employee duties in Business Protection cases in future.


Employment Litigation’s implications for the fitness and properness of Approved Persons

May 21st, 2012 by Julian Wilson

For many years, the most prominent inter-dealer broking firms have engaged in serial litigation over staff poaching. Some of these cases resulted in lurid tales being told at trial of amoral conduct.  Despite its role in judging the fitness and properness of Approved Persons, the FSA appeared to take no real interest and was slow to intervene.  The word was that it regarded the conduct as insufficiently related to any regulated activities.

Recent developments suggest that the FSA is now taking a broader view and that Approved Person litigants generally may be well advised to bear in mind the potential regulatory consequences of judicial findings relating to their integrity.

The developments I refer to are of course the decision of the FSA, published on 16 May 2012, to issue a Prohibition Order against Anthony Verrier of BGC, a decision, which has now been referred to the Upper Tribunal (Tax and Chancery Chamber). 

Readers of this blog will be familiar with the fact that in Tullett Prebon plc (and two others) v BGC Brokers LP (and 13 others including Mr Verrier) [2010] EWHC 484 (QB) Anthony Verrier was found by the High Court to have participated in an unlawful means conspiracy which included the inducement of brokers to breach their contracts with Tullett Prebon by unlawfully leaving their employment. In the course of Jack J.’s judgment, the Judge made findings that Mr. Verrier had departed from the truth in the course of his oral evidence at trial, had lost or disposed of his Blackberries containing potential evidence and had deleted a relevant report.

On 28 March 2012, the FSA issued a Decision Notice against Mr. Verrier stating that it was taking action under s. 56 FSMA to make a prohibition order against him. The Order prohibits him from performing any function in relation to any regulated activity because it appears to the FSA that Mr Verrier is not a fit and proper person due to concerns over his honesty, integrity and reputation. The Decision Notice points out that the FSA’s Fit and Proper Test for Approved Persons (“FIT”) states at 2.1.3G that, in determining a person’s honesty, integrity and reputation, the FSA will have regard to:

“(2)    whether the person has been the subject of any adverse finding … in civil proceedings, particularly in connection with investment or other financial business, misconduct, … or management of a body corporate;

 “(10)    whether the person, or any business with which the person has been          

             involved, has been … criticised by a … court …, whether publicly or


The Notice states that having regard to the FSA’s regulatory objectives, including the severity of the risk that Mr Verrier posed to the confidence in the financial system, the FSA considered it necessary and proportionate to exercise its powers to make the prohibition order.

Mr. Verrier’s lawyers  made representations on his behalf including that the FSA was extending its reach by basing a decision on conduct which was not itself a regulated activity. The Decision Notice addressed this by stating that the matters to be taken into account by the FSA in assessing whether a person is fit and proper extend beyond regulated activities as is apparent from FIT 2.1.1G: “In determining a person’s honesty, integrity and reputation, the FSA will have regard to all relevant matters …”

Approved Person litigants should beware.


What Part Of Its Confidential Business Information Can A Client Protect From Exploitation By An Employee Of His Contractor Post-Contract Or Post-Termination Of The Employee’s Employment By His Contractor?

March 22nd, 2012 by Julian Wilson

That was one of the issues facing Arnold J. in  Force India F1 Team -v- 1 Malaysia F1 Team [2012] EWHC 616 (Ch) (Judgment given on 21 March 2012). As neither counsel was able to cite any authority directly in point, Arnold J had to consider the matter on principle.

The central facts were that Italian wind tunnel aerodynamicist contractors at Aerolab had worked on the design of a half-size wind tunnel model of ForceIndia’s F1 car. After terminating their contract with ForceIndiafollowing non-payment, they began work developing a model for the then Lotus (now Caterham) team.

ForceIndia’s principal claim was that, in doing so, they and Lotus had misused confidential information relating to ForceIndia’s design.

ForceIndiahad entered into an Aerodynamic Development contract with Aerolab containing extensive confidentiality provisions over a wide range of information and material both during and post contract. In addition, ForceIndiahad entered into Confidentiality Agreements with Aerolab’s own employees whereby the employees (who as regards ForceIndiawere contractors providing services):

(a)  acknowledged that the agreements between ForceIndiaand Aerolab contained confidentiality clauses and that Aerolab would be communicating with them to inform them of their obligations to Aerolab under these agreements.

(b) agreed to keep information entrusted to them or discovered by them in the course of their work on Force India’s projects in complete confidence and not use or attempt to use the information in any manner except for the purposes for which it was disclosed to them;

(c) agreed that their confidentiality obligations to ForceIndiawould continue for 2 years post their employment by Aerolab or post Aerolab’s retainer by ForceIndia.

One issue falling for determination was whether the Aerolab employees’ obligation to ForceIndiain the post-retainer period extended to the wide range of information covered by the Aerodynamic Development Contract or only trade secrets (i.e. Faccenda class 3 confidential information).  

Arnold J. found that the law relating to employees was that a covenant against post-employment use of confidential information is unenforceable as being in restraint of trade in so far as it purports to prevent the ex-employee from using for his own benefit or that of a subsequent employer information which has become part of his general skill, knowledge and experience: Balston; Ixora Trading. Thus, in the absence of a restrictive covenant in the strict sense (i.e. a non-compete) the position of an ex-employee was the same whether his contract contained an express confidentiality clause or only an implied term, namely that he could only be restricted from using information which was a trade secret or akin thereto. 

Arnold J. held that the post termination confidentiality obligations of contractors providing services were the same as those of employees. Therefore, Aerolab’s employees could not be prevented from using information which had become part of their skill, knowledge and experience, even if it was learnt during the course of their work for ForceIndia, when working for Lotus, as opposed to trade secrets.

The question then became what aspects of the information ForceIndiaclaimed to be protected amounted to trade secrets. Amongst the information for which Force India claimed protection was the precise dimensions of the aerodynamic surfaces of parts; details of the modularity of the relevant parts (that is the precise way in which they relate to other parts); and details of the aerodynamic system of the relevant parts (that is the spatial relationship between the parts). In relation to dimensions, the court found that in so far as Computer Aided Design draftsmen used Force India CAD files to take a short cut in designing the Lotus model, they had misused confidential information akin to a trade secret. That information was generally separable from the employees’ skill, knowledge and experience, even if some individual dimensions were memorable and could be regarded as forming part of the employees’ skill, knowledge and experience. As to modularity, the court found even if certain aspects of the modularity were not in the public domain, this was the kind of information falling squarely within the skill, knowledge and experience of the contractors’ employees. As to features of spatial relationship, this was also the kind of information which mainly fell within the employees’ skill, knowledge and experience.

The Judgment also provides a useful guide to the authorities on the manner of assessing damages for breach of confidence.



January 26th, 2012 by Julian Wilson

by Julian Wilson 

The publication last week of the Joint Case Management Statement for today’s hearing in the High-Tech Employee Anti-Trust Litigation Class Actions brought in the US District Court for the Northern District of California, in San Jose, reveals publicly for the first time some of the evidence which was gathered by the US Department of Justice’s investigation into Anti-Competitive Employee Non-Solicitation Agreements between High Tech Companies.

 The DoJ investigation led to a civil antitrust complaint in the U.S. District Court for the District of Columbia and a settlement in September 2010 by which Adobe Systems Inc., Apple Inc., Google Inc., Intel Corp., Intuit Inc. and Pixar were prohibited from engaging in anti-competitive non-solicitation agreements which prevent soliciting, cold calling, recruiting, or competing for employees.

 As a result of the settlement, details of the non-poaching agreements which had arguably been made by some of the companies involved were not made public, but subpoenas in the Class Actions have resulted in disclosure of material collected by the DoJ including emails passing between some of the companies at senior management, and on occasion CEO level, describing agreements not to solicit or hire each other’s employees.

 According to the Joint Case Management Statement, the material includes an email dated 28 May 2005 from Adobe’s CEO, Bruce Chizen emailed to Apple’s Steve Jobs forwarding an email from Adobe’s Senior Vice President of Human resources to others at Adobe regarding “Recruitment of Apple Employees” stating:

 “Bruce and Steve Jobs have an agreement that we are not to solicit ANY Apple employees, and vice versa.” 

 In England, non-poaching agreements between employers have long been found to be subject to the Restraint of Trade doctrine and prima facie unenforceable. Famously, in Kores Manufacturing Co. v. Kolok Manufacturing Co the courts struck down what was described as a “non-poaching agreement” between two companies engaged in high tech chemical process product manufacturing by which they agreed not to employ any person who had been an employee of the other during a prior period of five years. In Esso Petroleum Co. Ltd. v. Harper’s Garage (Stourport) Ltd. two members of the House of Lords expressed the view that Kores could best be explained as a case concerning an agreement contrary to the public interest.

 The Defendants to the US Class Actions contend that the material disclosed shows no overarching conspiracy but only bilateral business arrangements. This is rather reminiscent of the losing argument run in Kores for the employers that as only one other employer was bound by the agreement and there were many other potential employers in the same industry who were not affected by it, the agreement was not an unreasonable restraint of trade. The court declined the invitation to distinguish the case of Mineral Water Bottle Exchange and Trade Protection Society v. Booth in which a trade association, which had 179 members throughout the United Kingdom, had a rule that no member should employ an employee who had left the service of another member until two years had elapsed from the end of his employment. The rule was struck down by Chitty J. as being in unreasonable restraint of trade, because it could have the effect of preventing former employees of any member from finding new work within the industry in which they were skilled. See similarly Eastham v. Newcastle United Football Club Ltd in which the transfer and retention system in relation to the employment of professional footballers in the Football League, which operated to prevent poaching of players between clubs, was held to be subject to the restraint of trade doctrine and to be unenforceable as a result.




Update on deferred variable remuneration

December 20th, 2011 by Julian Wilson

Parliament’s Draft Financial Services Bill Joint Committee has issued its First Report recommending that the new PRA and FCA should take an active interest in staff remuneration and should rigorously enforce the Remuneration Code.

The Committee also recommends that the Government and the Regulators should consider increasing the share of executive remuneration that is deferred and conditional on medium term outcomes, or introduce a concept of ‘strict liability’ of executives and Board members for the adverse consequences of poor decisions, in order to ensure that bank executives and Boards strike a different balance between risk and return.


The Trust and Confidence test, “reasonable and proper cause” and repudiation

August 23rd, 2011 by Julian Wilson

The meaning and application of the words “without reasonable and proper cause” in the Malik formulation of the implied term of trust and confidence continue to cause confusion.

In The Hira Company Limited –v- Daly UKEAT/0135/10/RN, the EAT was faced with an appeal by the employer from a majority Tribunal decision where the Employment Judge had been in the minority.  The majority had held that a salesman had been constructively dismissed in breach of the implied trust and confidence term when his ability to earn commission from his customers had been seriously damaged by the conduct of his employer.  

The employer had delivered faulty goods to one of the employee’s customers as a result of supplier fault. The employer had made late deliveries to one of the employee’s customers because it had delayed an order to avoid an unfavourable exchange rate. The employer had diverted a delivery intended for a customer of the employee to another customer to avoid a penalty. The employer had transferred a major customer account of the employee to his colleague when the customer had requested it.  Each of these acts were done for good business reasons and had not been motivated by any ill will towards the employee but they were seriously damaging to the employee’s ability to earn commission. 

The Employment Judge, in the minority, had considered that because there were sound commercial reasons for the employer’s conduct and it was not directed against the employee and was not in breach of any express contractual term, there had been no breach of the implied trust and confidence term because the employer’s acts had “reasonable and proper cause”. The employer argued on appeal that the Employment Judge had adopted the correct approach and the majority had been wrong.

The EAT dismissed the appeal, holding that the Employment Judge had been in error in focusing on the employer’s intention and motive. The minority had directed themselves correctly as regards the Malik/Mahmud test and had been right to focus on the objective effect of the employer’s acts on the employee and their impact on his remuneration. The Employment Judge had been wrong to find that the commercial reasons for the employer’s conduct and absence of any contractual obligation requiring the employer to keep the employee on the major customer account and requiring the employer to pay commission in respect of late deliveries, goods returned as faulty or orders postponed, established “reasonable and proper cause” for the conduct. The Judge had failed to consider objectively the impact of the employer’s conduct on the employee.