Helmet Integrated Systems Ltd v Tunnard & Ors

An employee may prepare to compete with an employer after leaving, provided the employee complies with the duties arising from the particular employment relationship. Describing conduct as preparatory does not itself establish its legitimacy. The court must first identify the employee’s contractual and fiduciary obligations, then decide whether the conduct breached them.

Every employee owes fidelity, but only particular duties requiring single-minded or exclusive loyalty are fiduciary. Clear words are required to restrict an employee’s ordinary freedom to assess and prepare a future competing venture. A duty to report competitors’ activities does not, without more, require an employee to disclose the employee’s own lawful preparations for post-employment competition.

A senior salesman employed by a manufacturer of protective equipment conceived a modular safety helmet and, before resigning, obtained development funding, commissioned concept drawings and discussed the project confidentially with a consultant connected to a potential competitor. After leaving, he formed a company which developed the proposed helmet.

The employer alleged breach of the employee’s duty of fidelity and fiduciary duties. His Honour Judge Fysh QC in the Patents County Court rejected those claims in [2006] EWPCC 1, holding that the activities were legitimate preparations for future competition. The employer appealed, relying particularly on a job specification requiring the employee to advise on competitor activity. The central issue was whether that obligation required disclosure of the employee’s own preparatory activities or otherwise made those activities a breach of duty.

1. Appeal dismissed unanimously. Lord Justice Moses gave the judgment, with which Lord Justice Lloyd and Lord Justice May agreed. The employee’s preparations for a competing venture breached neither his duty of fidelity nor any fiduciary obligation.
2. The court rejected the proposition that conduct is legitimate merely because it can be described as preparatory. The court must first identify the employee’s obligations and then determine whether the particular preparations breached them. Preparatory steps can breach duties of fidelity or fiduciary duties, depending on the employee’s position and responsibilities.
3. Every employee owes loyalty and good faith, but not every employee is a fiduciary. A fiduciary obligation arises only in relation to particular duties which place the employee in a position requiring single-minded or exclusive loyalty to the employer. The employee’s duty to report competitor activity could require him to deploy information acquired about a competitor exclusively for the employer. Misusing such information might therefore constitute both a breach of fidelity and a fiduciary breach.
4. The reporting obligation did not extend to the employee’s own lawful preparations for post-employment competition. He was employed as a salesman, not a designer, and development of a new helmet was outside the duties he had undertaken. His concept and work undertaken in his own time belonged to him. No relevant fiduciary obligation required him to pursue the project solely for the employer.
5. Clear words would have been necessary to remove the employee’s ordinary freedom to assess the viability of a future competing business before leaving. Neither the requirement to advise on competitor activity nor the general contractual prohibition against undertaking competing work clearly imposed a duty to disclose his own preparations. Although the Patents County Court had treated the preparatory character of the conduct as determinative, its dismissal of the claims was correct for these different reasons.

1. Court of Appeal (Civil Division): The employer’s appeal was dismissed unanimously in [2006] EWCA Civ 1735. The court upheld the rejection of the fidelity and fiduciary claims, although for reasons differing from those of the trial judge.
2. Patents County Court: His Honour Judge Fysh QC dismissed the employer’s design-right, fidelity and fiduciary claims in [2006] EWPCC 1. Only the fidelity and fiduciary rulings were appealed.