Implied and Fiduciary duty at the end of employment

Feb 2, 2021

On 13 January 2021, the Court of Appeal dismissed an appeal from Travel Counsellors Limited (TCL) of a decision by the High Court. In March 2020, the High Court held that TCL had breached their obligations of confidentiality by using client information brought to it by ex-employees of a competitor, Trailfinders (Travel Counsellors Ltd v Trailfinders Ltd [2021] EWCA Civ 38).

During 2016, a number of employees of Trailfinders left and entered into franchisee arrangements with TCL. Prior to them leaving, the ex-employees copied Trailfinders’ client information to make their own contact lists. One ex-employee was even found to have accessed Trailfinders’ client database after they had left the company. As part of their new franchisee arrangements with TCL, they were expected and positively encouraged to bring their own customers with them however, TCL failed to warn them about the risk of doing so and instead, added the clients to their system.

It is an implied term of an employment contract that the employees owe a fiduciary duty and good faith to its employer. This includes an obligation on the employee to use the employer’s confidential information for the purposes of their employment with the employer. The duty of good faith includes not to disclose confidential information to a competitor. An equitable obligation of confidence also exists for both the employee and the employer. This is imposed whenever a person “receives information he knows or ought to know is fairly and reasonably to be regarded as confidential.”. These duties and obligations apply even if there is no written restriction dealing with such matters following the end of their employment.

It was held the employees were each in breach of the duties implied into their employment contracts with Trailfinders and were also in breach of an equitable obligation of confidence owed to Trailfinders. It was also held that a reasonable person in the position of TCL’s CEO would have been aware that the client information the new employees provided would have belonged to Trailfinders but instead, TCL used the information for their own benefit. Therefore, TCL was also in breach of an equitable obligation of confidence it owed to Trailfinders.

This case highlights the need for ex-employees and new employers to be aware of their implied duties and obligations of confidence. Just because there is no written restriction to their activity following the termination of their employment, it does not mean they are able to do as they wish. For employers, if you become aware a new employee is using confidential information from a previous employer to carry out their duties, you must make reasonable enquiries and you must not use this information for the benefit of you as the new employer.

>> Judgement 
>> Appeal 

For further employment advice, please contact our Employment Group on 0118 977 4045 or employment@herrington-carmichael.com.

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.

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