Jarvis v Vision

Acceptance of a directorship carries, prima facie, duties to the company which are different from and higher than those of a bare employee. An employee may generally prepare to compete, subject to reasonable restrictive covenants, but a director who establishes or plans a competing business may breach the duties of fidelity arising from the directorship. Whether a directorship is merely nominal remains a question of fact. Clear and probative evidence is required to displace the prima facie inference that the ordinary duties of a director apply.

The applicant was a sales director and minor shareholder of a video-conferencing company. After approaching a major customer about a new business of his own, he was dismissed. The Employment Tribunal found that the conduct was inconsistent with his duty of fidelity, although the dismissal procedure was partly unfair and the compensation was substantially reduced.

The Employment Appeal Tribunal upheld that decision, relying on Marshall v Industrial Systems [1992] IRLR 294. The applicant renewed his application for permission to appeal, arguing that he was in substance an employee and was therefore free to plan a competing business. The central issue was whether his directorship was genuine or merely nominal.

1. Application refused. The court held that there was no issue of law with a respectable prospect of success.
2. An employee is, in principle, free to plan to establish a competing business, subject to reasonable restrictive covenants. That principle does not ordinarily apply in the same way to a genuine director, whose position carries distinct and higher duties of fidelity to the company.
3. Whether a particular directorship is so nominal that the relationship is only one of employment is a question of fact for the first-instance tribunal. Acceptance of a directorship gives rise to a prima facie inference that the ordinary responsibilities of a director apply. Evidence of sufficient probative weight is required to displace that inference.
4. The applicant's role was a genuine directorship, albeit subordinate to that of the managing director. The evidence did not justify treating him as merely an employee. His approach to the American customer was therefore capable of constituting conduct inconsistent with his duty of fidelity.
5. The court accepted the general distinction between the duties of a bare employee and those of a director described by Mr Justice Elias in Nottingham University v Fishel [2000] IRLR 471, and regarded the reasoning in Marshall v Industrial Systems [1992] IRLR 294 as applicable. The application for permission to appeal was refused.

• Court of Appeal (Civil Division): refused the renewed application for permission to appeal.
• Employment Appeal Tribunal: upheld the Employment Tribunal's decision under the summary procedure.
• Employment Tribunal: found an admissible reason for dismissal, but held the manner of dismissal unfair and awarded reduced compensation.