Hat spat centres on fiduciary stooshie

A salesman at a helmet design firm did not cheat his employer when he left and took his own helmet design to a rival, the Court of Appeal has ruled. The firm had not tied the employee specifically into owing it fiduciary duty, the court ruled.

Helmet Integrated Systems (HIS) makes helmets and employed a Mr Tunnard as a salesman for a number of years. Tunnard had an idea for a new kind of helmet and ended up leaving HIS and taking his design to a rival company, Lion Apparel Systems.

HIS took and lost a case arguing that Tunnard breached his fiduciary duty to it by preparing to develop the helmet while working for it and for failing to report his activity, since part of his job was to report activity by firms or individuals that were in competition with HIS. It then appealed its case and lost again.

In employment law, a fiduciary duty is what some employees owe their employer, and it means that the employee acts in the best interests of the company. This may encompass a duty to report wrongdoing and even to confess one's own wrongdoing.

Not every employee owes his employer a fiduciary duty. Directors all owe it to their companies, and some senior employees can have similar duties written into their contracts. The lesser duty which all employees owe is one of good faith and loyalty, or fidelity, but that does not necessarily involve an employee putting a company's interests above their own.

Tunnard argued that the only work he carried out while working for HIS was preparatory work, and did not engage in actual competition with HIS. Preparatory work is permitted in law in order that employees' freedom to change jobs or set up in competition with past employers.

The case turned on whether or not Tunnard owed a fiduciary duty to HIS and whether or not that duty was breached. Lord Justice Moses, in his adjudication, said that Tunnard's behaviour could have been a breach of fiduciary duty, but that such duty did not exist.

"I have accepted that Mr Tunnard's activities would have amounted to 'competitor activity' if undertaken by a competitor and I have accepted that he owed an obligation as a fiduciary not to misuse information about such activity for his own benefit or for the benefit of someone other than HISL," said Moses. "But it does not follow that he was under any obligation, be it fiduciary or otherwise, to inform HISL of his own activities or such activities undertaken on his own behalf."

"There seem to me two fundamental reasons why Mr Tunnard was under no obligation to report his own activities," said Moses. "Firstly, the words of the job specification do not restrict Mr Tunnard's freedom to prepare for competition on leaving. Secondly, he was under no relevant fiduciary obligation to HISL."

The court found that since Tunnard's contract of employment did not specify any further obligations, they could not exist. Tunnard was employed as a salesman, not a product designer, so it could not be assumed that rights in product design ideas he had would automatically be restricted.

HIS argued that a subsequently issued job description restricted his activity in relation to competitive activity, but Moses said that if such a fundamental change in his rights as an employee was intended, "then far clearer words would be required".

"Clear words are needed to restrict the ordinary freedom of an employee who is considering quitting his employment and setting up in competition to his former employer," he said.

Ultimately Moses said he had to find for Tunnard because HIS "had not restricted the freedom which Mr Tunnard had to prepare for future competition on his departure."