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Do your employees’ contracts protect your business if your employees move on?

By Pardoes Solicitors LLP  |  Posted: August 31, 2012

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You might think that a standard confidentiality clause will prevent your ex-employees from competing with your business, but the recent case of Ranson v Customer Systems plc highlights that this won't necessarily be the case. 

Mr Ranson was employed as a Sales Manager. His contract provided for a standard clause, requiring him to keep his employer's confidential information confidential, both during and after employment.

Mr Ranson handed in his notice and set about contacting his employer's clients with a view to securing work for his own company following his departure. There was no express term in his contract restraining him from contacting clients or setting up in competition with his employer's business, which should be included as standard wherever this could be a danger to the business when the employee leaves.

His employer sought to rely both on the confidentiality clause and argued that there was an  implied fiduciary duty on Mr Ranson,to report his intention to set up his competing business.

These sorts of fiduciary duties do not usually apply to a standard employment relationship and are usually only implied where an individual is a director or holds a senior office within a company.

As it turned out, the Court of Appeal held that no such duty arose as Mr Ranson was not a director of the company and there was no indication in his contract that such a duty should arise. In addition, the confidentiality clause made no reference to contacting the company's clients and therefore there was nothing to prevent Mr Ranson doing so and setting up in competition.

In order to protect your business, it is important to think ahead about what could happen when an employee leaves and what damage they could do to your business and make sure suitable specific clauses are included in their contract of employment. The legal position is that post termination restrictions on an employee's ability to compete are void unless the restriction is  no more than is necessary in order to protect the employer's legitimate business interest. Any restrictions must therefore be carefully worded so that they are not too broad and consequently rendered void.

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