The departure of an employee to work for a competitor, or for their own fledgling business, can pose significant risks to their previous employer’s business. These risks have been emphasised in two recent cases in which employers discovered the hard way the need for careful drafting of employment contracts, and practical management of the employment relationship from beginning to end.

The Decisions

In Ranson v Customer Systems Plc [2012] EWCA Civ 841, which was decided last month by the Court of Appeal, Mr Ranson had taken steps to set up a new business while still working for Customer Systems Plc. His employment contract, which he had signed ten years earlier as a graduate entrant, included no post-termination restrictions and no specific language regarding duties he owed during employment. Customer Systems Plc sued Mr Ranson, alleging that he had breached implied fiduciary duties and an implied duty of fidelity by making preparations to start his new business before leaving. The Court of Appeal found, however, that employees below the level of director are not required to put their employer’s interest before their own, without specific obligations to that effect in their contracts.

In a High Court case, CEF Holdings Limited v Complete Electric Solutions Ltd [2012] EWHC 1524 (QB), the Court considered an injunction application by an employer that aimed to stop former junior employees from working for a competitor. Although the employees had restrictive covenants in their contracts, these covenants were drafted too widely to be enforceable. In addition, the fact that the contracts of the employees’ managers did not contain similar restrictions, and that the employees concerned had only a one week notice period, weakened the employer’s argument that such provisions were necessary and appropriate.

What Does This Mean for Employers?

These cautionary tale cases illustrate that the level of obligation owed by an employee should reflect accurately their seniority and importance to the business. An employer could consider making additional restrictive covenants or contractual duties a key condition of a pay raise or promotion.

If enforceability of restrictive covenants is of commercial importance to an employer, it is vital to have tailored drafting that is consistent with not only the employee's individual role and contract, but also the hierarchy of the workplace.

Kathryn Ilczyszyn, a trainee solicitor at the London office, has contributed to this article.