Duty Of Fidelity Breached By Employee Who Plotted And Assisted Team Move To Competitor

In Thomson Ecology Ltd v APEM Ltd, the High Court considered an application for summary judgment against a senior employee who poached a team of employees from his employer to a competitor. (“Summary judgment” is sought by a claimant where it considers the defendant has little prospects of successfully defending the claim).

In Thomson Ecology Ltd v APEM Ltd, the High Court considered an application for summary judgment against a senior employee who poached a team of employees from his employer to a competitor. (“Summary judgment” is sought by a claimant where it considers the defendant has little prospects of successfully defending the claim).

The defendant employee, Mr Hall, was an Operations Manager at a marine biology company, Thompsons Unicomarine Ltd (Unicomarine). Whilst Mr Hall was a senior employee, he was not a director. He did not have a formal contract of employment given to him at the outset of his employment, however he was later provided with a statement of terms which, importantly, did not contain any post-termination restrictions.

Whilst still in employment, Mr Hall began developing a covert plan with a competitor business, APEM Ltd (APEM), to shift Unicomarine’s business (including a number of employees) to APEM.  Mr Hall resigned in November 2012 and started working for APEM on 2 January 2013. When another 17 employees then left Unicomarine and starting working for APEM, Mr Hall’s malpractice became apparent.

Unicomarine brought a claim against Mr Hall for breaching the implied “duty of fidelity”. The duty of fidelity is implied into all employment contracts and requires an employee to have regard to their employer’s interests. Unicomarine argued that Mr Hall had breached this duty during his employment by:

• failing to disclose a threat from a competitor (i.e. APEM); and
• actively assisting the recruitment of staff by APEM.

The Court gave summary judgment in part and held that Mr Hall had breached the duty of fidelity. Firstly, the Court found that Mr Hall was obliged to report to his employer any threat to the business or staff. As part of his role as Operations Manager, Mr Hall had reporting obligations regarding the performance of the business. The Judge “could not accept that employees, in particular senior managers, could keep silent when they know of a planned poaching raid”.

Secondly, it was held that Mr Hall had breached his duty of fidelity by formulating a plan with APEM and actively helping to implement the plan. Mr Hall had informed several employees that APEM were looking to recruit and had provided APEM with names of interested employees. Further he had arranged meetings at his home for his colleagues and APEM.

As Mr Hall did not have restrictive covenants in his contract of employment, Unicomarine’s claim against him focused upon acts done during employment (as opposed to those done after). When Mr Hall first handed in his notice of resignation Unicomarine indicated that they would pay him in lieu of notice, however they later changed their mind and stated that they would place Mr Hall on garden leave (as they did not have the contractual right to pay him in lieu of notice). This aided Unicomarine’s position, as the duty of fidelity continues during any period of garden leave and protects the employer from any malpractice during this time.

This is an unusual case and it would have been much better for Unicomarine to protect its business if it had Restrictive Covenants in place. The case demonstrates how, in the absence of express contractual terms, implied terms can be relied upon to protect an employer’s business. In “team move” situations, employees will often work with assistance from a new employer whilst they are still in employment. Employers should consider whether they have effective post-termination restrictions in place for key employees in order to protect themselves not just during employment (via the implied duty of fidelity) but also after employment has ended.