Business Law: Marie Allen of Gotelee Solicitors explains fiduciary duties

A COMPANY director’s role and responsibilities are such that he owes the company a fiduciary duty, meaning that he must act in the company’s best interests, even if this conflicts with his own interests.

In Ranson v Customer Systems plc, the Court of Appeal considered whether employees can owe their employer fiduciary duties.

During his employment with Customer Systems, Mr Ranson received various promotions, eventually becoming a divisional manager, which involved wider responsibilities than his previous roles.

However, 12 months after becoming divisional manager, he resigned and set up his own business. Some of the work that he did arose from discussions he had with the company’s clients, during his notice period, when he told them he intended to set up in competition after leaving his employment.

The company argued that Mr Ranson owed the company fiduciary duties due to his position and that by speaking to the clients about his intentions, and not telling the company he had done so, he had put his own interests before those of the company. The company also argued that Mr Ranson had breached the duty of fidelity.

The court distinguished employees from directors. Directors always owe fiduciary duties to their company. However the existence of any fiduciary duty, and the extent of the duty of fidelity, will depend on the employee’s contract. Mr Ranson’s contract hadn’t changed with his role, and it went no further than the duty to do his job faithfully.

Unless their contract states otherwise (which Mr Ranson’s didn’t) employees are not generally required to disclose their own misconduct to their employer. The duty of fidelity requires an employee to have their employer’s interests at the forefront of their mind but, unlike a fiduciary duty, not at the expense of their own interests. Mr Ranson’s contract required him to keep his employer’s and their customers’ and business partners’ information confidential during his employment but didn’t prevent him starting a competing business after he had left.

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The duty of trust and confidence is implied into every employment contract but this could not, by itself, to give rise to a fiduciary relationship. The extent of a fiduciary duty must be determined by the employee’s contract and fiduciary duties could only be implied if this is consistent with the contract.

This case demonstrates the importance of ensuring that employment contracts and job descriptions cover expectations of an employee’s role and provide adequate protection, during and after employment.

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