Customer Systems Plc v Ranson & Ors

An employee may prepare to compete after leaving employment, but preparatory activity becomes a breach when it involves pursuing or diverting the employer’s business opportunities while the employment continues. Whether an employee owes fiduciary duties depends on the particular functions undertaken and the employer’s ability to control the relevant information. An employee seeking new employment may receive confidential information about a prospective employer without informing the existing employer, provided that the employee does not assist the prospective employer in competing with the existing employer.

Post-termination restraints must protect a legitimate business interest and be reasonable in scope and duration. A covenant covering customers without a time limit on the employee’s previous involvement, and unrestricted as to the type of work prohibited, was unenforceable.

Customer Systems plc claimed monetary relief against four former employees in connection with Praesto Consulting UK Ltd, a competing consultancy established by Jeremy Ranson. The claims concerned alleged breaches of contractual duties of fidelity and good faith, fiduciary duties, misuse of business opportunities and confidential material, inducing breach of contract, and post-termination covenants.

The claim against David Atherton had settled before trial. The court determined liability only. It found breaches by Mr Ranson in pursuing certain opportunities for Praesto while employed and in taking business contacts and company forms. Patrick Offland breached his duties by assisting Praesto’s bid for work connected with AstraZeneca, but his restrictive covenant was unenforceable. Claims against Mark Edmond, apart from an admitted sick-pay claim, failed.

1. Mr Ranson’s status and preparatory competition. An employee is generally entitled to discuss and plan a future competing business. Whether the employee is also a fiduciary depends on the particular functions and obligations undertaken. Mr Ranson was not a fiduciary in all matters, but was a fiduciary in relation to sales because he dealt with customers and CS could not control how he used information obtained through that role.
2. Business opportunities. By sending CVs to Oracle and seeking work for Praesto while employed, Mr Ranson breached his contractual duty of loyalty and fiduciary duty. He should have informed CS, since the opportunity could have been investigated for CS. He likewise breached those duties by pursuing opportunities arising through Mr Clothier at Diageo and by canvassing Mr Boardman for AstraZeneca work without informing CS. He was not required expressly to disclose that he intended to build a competing consultancy.
3. Company material. Extracting business contacts from CS’s mobile phone for Praesto’s use breached Mr Ranson’s contractual duty. His use of those contacts, and his copying and use of invoices, timesheets and order confirmations as Praesto forms, also breached his fiduciary duties.
4. Confidential information and new employment. Mr Offland was entitled to receive confidential information about Praesto while seeking employment, and had no general duty to report the threat posed by Praesto. That position changed when he assisted Praesto’s competing bid for AstraZeneca Global work while still employed by CS. He thereby breached his contractual and fiduciary duties and was required to inform CS. The unpleaded assistance concerning a Reckitt Benckiser training course was not treated as a breach.
5. Inducing breach and restraints. Applying OBG Ltd v Allen [2008] AC 1, a person who knowingly or recklessly procures a contractual breach is liable. If Mr Offland’s covenant had been enforceable, Mr Ranson would have been liable for inducing its breach. The covenant was unenforceable because it had no limit on the time between customer involvement and termination, included past customers without limit, and was unrestricted as to the kind of work prohibited. The non-compete covenant was also unenforceable because it did not protect a legitimate interest.
6. Mr Edmond. Mr Edmond did not breach his duties by assisting a Barclays contact, failing to report the project-management opportunity at AstraZeneca, or failing to report his knowledge of Praesto. His employment and non-compete covenants were unenforceable. The sick-pay claim was admitted.

First-instance liability judgment. The claim against Mr Atherton had settled before trial. The court deferred questions of damages, accounts of profits and amounts.