Court of Appeal further defines circumstances in which employees will be subject to fiduciary duties
July 2nd, 2012
When and how an employee may be subject to fiduciary duties is a question which both Judges and practitioners and have found it difficult in practice to discern.
In its judgment in Ranson v Customer Systems plc  EWCA Civ 841, last week, the Court of Appeal addressed how a court should go about ascertaining, in the circumstances of each case, whether an employee owed fiduciary duties and the scope of any such duties owed. It did so by a careful analysis and application of the existing case law but I concentrate below on the approach it derived from those cases.
The proper approach
The CA disapproved of drawing analogies with Company Directors and using the Director cases to discern the duties owed. Companies are artificial persons which can only act through human agents - the Directors. The Directors exercise the Company's powers and are treated as trustees of its property. For those reasons, they are in a fiduciary capacity in which they have to put the interests of the Company, for which they act as agent, before their own interests.
Employees are not in such a fiduciary capacity. Any powers imposed on the employee are conferred by the employer under the employment contract. Whether they give rise to a fiduciary duty depends on the terms of the contract. It is the contract which should be the starting point of the analysis. The question is whether there are any specific contractual obligations which the employee has undertaken which have placed him in a situation where equity imposes a fiduciary duty, rigorously restricting his freedom to act in his own interests by requiring him to put his employer's interests first, in addition to the contractual obligation.
Neither the implied duty of fidelity nor the implied duty of trust and confidence can be used as surrogates for fiduciary duties because:
The scope of the duty of fidelity derives from the terms of the contract. Unlike the fiduciary duty of loyalty, the duty of fidelity is not a duty to act in the interests of another. It is one where each party must have regard to the interests of the other, but not one where either must subjugate his interests to those of the other.
The trust and confidence term is an incident of every contract of employment by implication of law. As not every contract of employment gives rise to a fiduciary relationship, it is clear that reliance on the trust and confidence duty cannot of itself give rise to fiduciary obligations.
Take the matter of business opportunities coming to a person's attention. Whilst a director's fiduciary capacity dictates that he must put the Company's interests first and give to it the benefit of every opportunity he learns of falling within the scope of its business, an employee does not in general promise to give his employer the benefit of every opportunity falling within the scope of its business unless he owes a specific contractual duty to secure the work for the employer.
Take the duty to disclose one's own misconduct. Whilst a director's fiduciary capacity may dictate that he must disclose his own wrongdoing as part of his fiduciary duty to act in what he considers in good faith to be the best interests of his Company, an employee is not generally obliged to disclose his own misconduct.
Whether the employee has duties to bring business opportunities to his employer's attention or to disclose his own wrongdoing will depend on the terms of the contract.
The decision in Ranson is likely to lead to a far more analytical approach to the question of employee duties in Business Protection cases in future.
"A very welcome addition to the very limited range of material available on domestic employment...