Plumbly v Beatthatquote.Com Ltd.

An employee’s share option is not lost merely because the employer alleges breaches of the employment contract. The employer must establish a contractual or other legal bar to exercise, including a serious and repudiatory breach where that is relied upon.

A contractual restriction against direct competition concerns active competition for the same custom, not every activity capable of producing revenue in a related field. Minor personal business activity during working hours will not ordinarily defeat an option where it did not interfere with the employment. Damages are the primary contractual remedy where they adequately compensate the claimant, and the innocent party may choose between available remedies.

The claimant held an option to subscribe for shares representing 10% of the defendant company’s ordinary shares. He exercised the option on 8 March 2006. The defendant refused to allot the shares, alleging breaches of the claimant’s employment contract and fiduciary duties.

The allegations concerned operation of a buy-to-let website, personal business activity during working hours, and disclosure of confidential information. The claimant sought damages for breach of the share option agreement. The central issues were whether the alleged conduct breached his contractual obligations and whether it prevented exercise of the option.

1. Liability. The claim succeeded. The claimant was not a director when he exercised the option, so the alleged breach of fiduciary duty did not arise for decision. The court also left open the correctness and scope of the proposition discussed in Tesco Stores Ltd. v Pook [2004] IRLR 218.
2. The side letter permitted operation of the claimant’s website provided it did not directly compete with the defendant. Direct competition meant striving for the same custom. The claimant’s website was unlikely to appear in searches for “mortgage”, while the defendant used “buy-to-let” as a negative keyword and was not actively seeking that business through relevant searches. Processing a buy-to-let request which reached the defendant through a broader search did not make the businesses direct competitors.
3. The claimant’s telephone calls and emails concerning his own property business and website during office hours did not constitute a breach in the circumstances, given the long hours worked and the employer’s knowledge and tolerance. Even if there had been a breach, it was not serious or repudiatory.
4. The allegation that the claimant disclosed confidential information was unsupported by evidence. The claimant had therefore not breached his employment contract in the ways alleged. Absent a repudiatory breach, there was no bar to exercising the share option.
5. Remedy. The claimant elected damages rather than specific relief. Damages are the primary remedy for breach of contract where they adequately compensate the innocent party. The innocent party may choose between alternative remedies up to judgment. Damages were assessed using forecast revenue of £13.34 million, a revenue multiplier of 1.2 and a 65% minority discount.