Re-Use Collections Ltd v Sendall & Anor

An employee’s duty of fidelity and good faith prohibits a senior employee from actively preparing and implementing a directly competing business during employment, although limited lawful preparations may be permissible. An employment relationship does not of itself create fiduciary duties. New substantial post-termination restrictions imposed during existing employment require consideration, and continued employment alone will not suffice where no link is established between continued employment and acceptance of the restrictions. Restrictions must be objectively reasonable and no wider than necessary to protect a legitimate interest. A company may be liable for unlawful means conspiracy where it combines with an employee to benefit from breaches of duty, even though inducement of the employee’s breach is not established.

Reuse claimed that its former senior employee, Keith Sendall, breached duties of fidelity, good faith and confidence by helping establish May Glass Recycling Ltd while still employed. It alleged that May Glass induced or procured those breaches or conspired with him to injure Reuse. Sendall challenged the enforceability of restrictive covenants introduced during his employment and counterclaimed for constructive dismissal. The court also had to determine entitlement to interim injunctive relief and the recoverable loss.

1. Liability of Sendall. Sendall owed Reuse an implied duty of fidelity and good faith, including a duty not to compete during employment. The duty permits some preparation for lawful post-employment competition, but the totality of Sendall’s conduct went beyond preparation. He arranged finance, incorporation, equipment, suppliers and customers for May Glass, much of it during working time, while concealing his involvement. He therefore breached his duty.
2. Sendall was not a fiduciary. His employment contract and role as depot manager did not place him in a position comparable to a director or senior strategic decision-maker, and he lacked the relevant control and access to confidential information.
3. The restrictive covenants were unsupported by consideration. The salary increase and proposed bonus were not shown to have been conditional on acceptance of the new contract, and continued employment was insufficient in the circumstances. The confidentiality clause was also unenforceable. Alternatively, the 12-month non-setting-up restriction was too wide, and the six-month solicitation and dealing restrictions were not shown to be reasonably necessary; three months was the maximum justified.
4. Sendall was not constructively dismissed. Reuse’s investigation, suspension, removal of company property and disciplinary process did not amount to a repudiatory breach. His counterclaim therefore failed.
5. May Glass was not liable for inducing or procuring Sendall’s breach, since he had embarked on the breach before its incorporation and the evidence did not establish the necessary knowledge and procurement. It was, however, liable for unlawful means conspiracy. Sendall and May Glass combined with a common intention to establish and benefit from the competing business using his breaches of duty.
6. Reuse was entitled to interim springboard relief against both defendants. Recoverable loss was limited to the three months during which May Glass obtained an unlawful head start. Judgment was entered for Reuse in the sum of £51,822.20 plus applicable interest.