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Departing employees still owe a ‘duty of fidelity’

Employees who resign from their jobs to join a rival company could end up in trouble with the law by virtue of their implied 'duty of fidelity' to their employer.

In most cases, of course, firms are perfectly entitled to poach employees and clients from their competitors. It is natural business behaviour.

But the High Court has ruled that when a group of employees defect – and keep quiet about their plans until they are fully realised – they could be breaking their duty of fidelity to their original employer.

All employment contracts have an implied duty of fidelity, which broadly means that employees must not act against their employers’ interests.

Due to the implied duty of fidelity, employees agree to act loyally and in good faith and not to act against the employer's interests. This is an especially wide-ranging duty that carries on during the entire term of employment up to the termination date, and comprises several facets:

• Not soliciting the customers of the employer;
• Not setting up in a business in competition with the employer;
• Not recruiting colleagues to work for competitors;
• Not disrupting the employer's business;
• Not misusing the employer's property.

The High Court decided that three senior employees of a rehabilitation-management company broke this when they went to work for a competitor without ever telling their original employer that the competitor had approached them and they had agreed to go and work for it. The original employer found out only after they had started their new jobs.

Each defecting employee had known about the plans of the others for at least two months before they left. To make matters worse, they had misled their original employer about their own plans.

In another case, a senior employee at a large wealth-management business handed over resignation letters from 52 of its employees. All had accepted work in a new business the senior employee was setting up. Twenty-three more people followed shortly afterwards.

The wealth-management business found out that people in the firm had co-ordinated the defections. It took the matter to the High Court.

The judge said it was unacceptable for employees, and particularly senior managers, to keep quiet when they knew of planned poaching raids – especially if they were among the plotters themselves. In doing so, they broke their duty of fidelity to their original employers.

The cases are part of a growing trend for firms to use the courts to protect their interests when a group of employees leave to set up in competition.

Pearson Hinchliffe Commercial Law can help you with employment law, especially advising on contracts of employment - in particular any restrictive covenants, confidentiality agreements or intellectual property provisions. And employee handbooks - codes of conduct and activities during work hours.

Click here to speak to a specialist employment lawyer.

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Telephone: +44 (0)161 785 3500, Fax: +44 (0)161 624 2589, Email: enquiries@pearson-hinchliffe.co.uk