Employee’s Duties and Restraint of Trade

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Table of Contents

Introduction
Analysis of Legal Issues
Legal Authority
Application of Law
Evaluation and Conclusion
References
Table of Cases

Introduction

The contract of employment is the cornerstone of the relationship between employer and employee. In that regard, the contract’s purpose can be seen in expressing the duties and the obligation of the employee and the employer during the employment. Contract clauses, concerned with post-employment restrictions, are generally utilized to protect the rights of the employer. The case of Michael Spanner, an employee at Speedyfix Garages, is revolved around his duties during the period of his 10 years employment as well as the actions that he intends to do upon the termination of his employment.

The key legal issues that can be identified in his case are related to the expressed and implied duty of fidelity during employment and several restrictive covenants expressed or implied in Spanners contract, which are non-competition, non-solicitation, non-dealing and non-poaching. This paper will analyse the aforementioned case, providing a preliminary legal advice regarding Michael Spanner’s expressed and implied duties and the potential issues that might arise post his termination of employment.

Analysis of Legal Issues

The first issue is related to Spanner’s duty of fidelity. The duty of fidelity implies that the employee must “at all times show good faith in their dealings with the employer and on the employer’s behalf” (Pitt, 2008). There are several aspects related to the duty of fidelity, among which the duty expressed in Spanner’s contract stated that the employee “shall not without the full and informed consent of the employer, undertake any other form of paid employment whatsoever”. There are two instances that can be related to a breach of the duty of fidelity and good faith. The first instance is related to Spanner taking pad work unbeknown to Speedyfix during his employment time. The second instance is taking orders in his spare time, outside of Speedyfix garages. The issue to consider is whether the expressed term, “during the continuation of employment”, and the actions of Spanner are related to the contract clause. Accordingly, the expressed duties are related to accounting for secret profit, and the implied terms of not competing with the employer, where the employee is setting himself to act in his spare-time, something which might inflict harm to the employer.

The second legal aspect can be related to the clauses in the contract that deal with the employees’ obligation after the termination of the contract. The first issue is related the expressed terms setting a non-dealing restraint, where the clause prevent Spanner for twelve months to accept or conduct business with any person, firm, company or organisation who or which at any time during the preceding five years dealt with or was a customer of Speedyfix. Another expressed terms set non-poaching constraints, in which the employee shall not solicit a colleague to join the employee in a new venture. The legal issue will be in deciding the reasonableness of the expressed restrictions, as no implied restraints of trade are taken to employer’s benefit at court (Holland and Burnett, 2008).

Other legal issue are implied, and which were not stated expressed in the contract as they are also related to the duty of fidelity during employment. The intention of Spanner to solicit Speedyfix customers and employees to leave for the new business is a breach of implied duties of fidelity (Holland and Burnett, 2008).

Legal Authority

Analyzing the terms of the duty of fidelity, it can be seen that they were explicitly stated in the contract. Nevertheless, it can be stated that the employment relationship is subject to the statutory criteria as well, with the preferences specifically given to the latter (Smith and Thomas, 2008). The landmark case related to secret profits made by employees is Hivac v Park Royal Scientific Instruments Ltd (1946), in which is stated that duty of fidelity is owed by employees. The case was specifically was concerned with working for other employer in the spare time. Accordingly, the court does not make distinctions as to whether the duty of fidelity was implied or expressed. Such act is justifiable for dismissal, as the business interest is directly competing with the employer’s business. Additionally, convincing the employees or the customers to change the employer during the period of the employment can be also related to a breach in expressed or implied duty of fidelity. Funding and soliciting orders from potential customers of the employer, while being in its employment is a breach of the duty of fidelity (Lancashire Fires v S. A. Lyons & Company Limited (1997)) (BAILII, 2010). Accordingly, poaching other employees, while on employment terms, is considered as non consistent with the duty of fidelity to the employer (British Midland Tool Ltd v Midland International Tooling Ltd & Ors (2003)) (BAILII, 2010).

Post-termination restrictive clauses are not so clear in that matter, where they are of value if enforceable, as “covenants are only lawful if they genuinely protect against unfair exploitation of the ex-employer’s trade secrets or trade connection… [i]t is for the court to decide as a matter of law whether a contract is in restraint of trade and, if so, whether it is reasonable” (Extec Screens & Crushers Ltd v Rice (2007)). For the non-poaching covenant, the protection of the workforce is considered as valid interest, which the employer has the right to protect, where the limit of a period of twelve month was found justifiable in the case of Dawnay, Day & Co Ltd & Anor v D’Alphen & Ors (1997). The restriction does not apply to the usage of other forms of communication, where the rationale is the ex-employees “may seek to exploit the knowledge which he has gained of their particular qualifications, rates of remuneration and so on” (Dawnay, Day & Co Ltd & Anor v D’Alphen & Ors (1997)) (BAILII, 2010). As for non-dealing covenants, it can be stated that.

Application of Law

Applying the aforementioned cases to the present facts, it can be stated that there are several different advices that can be made. As stated earlier, undertaking any form of paid employment during the period of contract employment is a breach of implied and expressed terms of the duty of fidelity. While an intention to leave and establish a business of his own is not a breach in itself, working in a business competing with that of employer’s is subject to restriction (Pitt, 2008). The main focus can be seen in establishing what constitutes a great harm to the employer, where the actions of Spanner working in this same field and industry is a direct competition, the restriction of which was directly expressed in the contract. The absence of such restriction would not have changed the outcome in that matter as such notion is implied being bound under the duty of fidelity (Holland and Burnett, 2008). The same can be said about poaching and soliciting during employment. Although preparatory actions are allowed, if the employee is planning to resign, the actions intended by Spanner do not fall into such category, as he should “act in his employers’ interests and not use the time for which he is paid by the employers’ in furthering his own interests” (Hivac Ltd v Park Royal Scientific Instruments Ltd (1946)), cited in Alexander Michael Accountants v Povey (1994) (BAILII, 2010).

Concerning the post-restrictive covenants in Spanner’s contract, the non-dealing covenant is applicable as it protects the interest of the employer. Applying the case law, there is a risk of damage to the employer if such restrictive covenants were not established (Norbrook Laboratories (GB) Ltd v Adair & Anor (2008) (BAILII, 2010). Nevertheless, the issue that might be disputed is the period established by the employer. While the period of 12 months seem reasonable, the establishment of a period of five years as a preceding period for the customers’ of Speedyfix Garages might pose hardships on Spanner. An analysis of the area, the industry and the possibility of earning living with such restriction might lead to the reduction of the period by the court, where in Norbrook Laboratories (GB) Ltd v Adair & Anor (2008) (BAILII, 2010), the period of two years was reduced to one.

Evaluation and Conclusion

It is advisable for Michael Spanner to inform the employer of his intention to resign from his position. Accordingly, any attempts to solicit or poach employees or customers during such period might be considered as a breach of the contract, the clauses of which might be enforced, if the employer can justify the purpose of the covenant (British Employment Law, 2010). Additionally, Spanner can make preparatory plans outside of working hours for setting his own business. Accordingly, the usage of traditional communications for employment is advisable.

It can be concluded that the basis for inclusion of restrictive clauses in the contract is the protection of the employer from un-fair competition, where the intended actions of Spanner might act like one in this case. Accordingly, the expressed terms on fidelity duty will ensure that the employees will act to the interests of the employer.

References

BAILII. 2010. British and Irish case law & legislation. Web.

BRITISH EMPLOYMENT LAW. 2010. Restrictive Covenants. Web.

HOLLAND, J. A. & BURNETT, S. 2008. Employment law 2009, Oxford ; New York, Oxford University Press.

PITT, G. 2008. Cases and materials on employment law, Harlow, England, Pearson Education Limited.

SMITH, I. T. & THOMAS, G. 2008. Smith & Wood’s employment law, Oxford, Oxford University Press.

Table of Cases

Alexander Michael Accountants v Povey [1994] UKEAT 897_93_2103.

Dawnay, Day & Co Ltd & Anor v D’Alphen & Ors [1997] EWCA Civ 1753.

Extec Screens & Crushers Ltd v Rice [2007] EWHC 1043 (QB).

Hivac v Park Royal Scientific Instruments Ltd [1946] All ER 350, Court of Appeal

Lancashire Fires Ltd v S A Lyons & Company Ltd & Ors [1999] EWCA Civ 1718.

Norbrook Laboratories (GB) Ltd v Adair & Anor [2008] EWHC 978 (QB).

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