Setting up in Competition with your Former Employer

Some while ago I prepared article for clients about the implications of the High Court decision in Customer Systems plc v. Ranson. Interestingly, although much of the original Judgment still stands, one significant aspect has been successfully appealed to the Court of Appeal by Mr Ranson. Part of the Judgment of the High Court centred on Mr Ranson's duties and obligations to his employer when he knew he was about to leave them and set up in a competitive business. The background to the case is that Mr Ranson's Contract was a "homemade Contract" prepared by his employer which did not contain detailed obligations, nor any restrictive covenants, and he was never provided with a new Contract whilst he rose to a senior position in the company (but crucially was never appointed a Director).
 
The Court of Appeal has overturned some aspects of the High Court Judgment and has clearly distinguished between fiduciary duties owed by Directors to their companies and other duties owed by employees. The starting point for looking at the duties owed are the Contract. The Court of Appeal has explained that there is a clear distinction between the duties of a fiduciary such as a Company Director and an employee's contractual duty of fidelity. Much of the factual case turned on whether Mr Ranson was under a duty to report his own actions prior to his leaving employment. The importance of the Contract and the express terms has been clearly underlined by the Court of Appeal decision. Unusually for someone in Mr Ranson's senior position there were no relevant restrictions on his activities after he had ceased to be employed. On that basis and because of the relative simplicity of the Contract there were no key breaches in a number of respects and Mr Ranson was successful on his appeal.
 
For employers and employees alike the Judgment emphasises the importance of understanding clearly the obligations under the Employment Contract. Although Mr Ranson was successful on the facts of this case this was due to a close analysis of his obligations based on his express contractual terms. Unusually for such a senior employee these terms were relatively limited and there were no relevant post termination restrictive covenants. It is a useful reminder to employers to review from time to time terms of an employees Contract as he or she attains promotions.
 
For more information, or for specific advice regarding employment issues, contact Holly Dobson on 0114 266 6660 or email holly.dobson@wake-smith.com.

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