'Off-the-record' comments can break the implied duty of trust and confidence

21 January 2008

One of your key employees has resigned to work for a competitor. After reminding the employee of the non-competition restrictive covenants, an article appears in the press confirming that the employee is working for the competitor. The article favours the competitor over you (the unnamed "source" was probably the competitor itself) and contains a number of factual errors. How do you respond?

As the case below highlights, speaking to the press to try and correct the errors may breach the implied duty of trust and confidence.

Employers have an implied duty of trust and confidence to not "without reasonable and proper cause, conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of trust and confidence between employer and employee"¹

The restrictive covenants

On 1 December 2005, RDF Media Group PLC (RDF) agreed to purchase IWC Media Limited (IWC). Mr Clements was a shareholder of IWC. He entered into a Service Agreement with RDF Media Limited (RML), a wholly owned subsidiary of RDF. In exchange for almost £2 million in cash and shares, he also agreed to a number of restrictive covenants with RDF including one which provided that, for three years after 1 December 2005, he would not be "engaged, interested or concerned in, or assist" any business which competed with RDF or any group company. The agreement went on to provide that this three year restriction would be reduced to two years if Mr Clements ceased to be an employee of RML, other than as a result of his voluntary unilateral resignation or summary dismissal.

Termination of employment

Mr Clements gave six months' notice to resign from his employment on 30 March 2007 to join a competitor. He claimed that his employer had breached the implied duty of trust and confidence, entitling him to resign without notice and claim to have been constructively dismissed so that the Service Agreement and the restrictive covenants come to an end. RML denied constructive dismissal and maintained that the Service Agreement remained in force. Eventually, on 3 May 2007, RML wrote to Mr Clements' terminating his employment.

Because of the wording of the restrictive covenants, it was crucial to determine whether the employment ended because of the resignation or because RML dismissed him; and, if RML did dismiss him, whether it was entitled to do so summarily. The court determined that, although the original notice of resignation "may have started a chain of events", it was not necessarily that notice that brought the employment to an end. If there was a subsequent repudiatory breach by RML, that breach could have caused the termination of employment.

Amongst other allegations, Mr Clements claimed that comments made by RDF/RML to the press amounted to breaches of the implied duty of trust and confidence.

Who breached mutual trust and confidence first?

The court held that comments to the press solely designed to correct a material error which has already been published, were made with "reasonable and proper cause". Many of the comments made by RDF/RML fell into this category. However, comments that expressed or implied an adverse opinion such as "if you take the money you do the bloody job. It's just so dishonourable", constituted an attack on Mr Clements' character and went beyond what was reasonable. These amounted to serious breaches of the implied duty of trust and confidence, capable of repudiating Mr Clements' Service Agreement.

Having found that RDF/RML had breached the implied duty of trust and confidence, the court considered Mr Clements' own conduct. Mr Clements had disclosed confidential information to his prospective employer, agreed to try to take certain projects with him and approved or co-operated with the preparation of a press briefing to try to put pressure on RDF to release him from his obligations. These acts "constituted acts of disloyalty on Mr Clements' part which amounted to a breach by him of the mutual obligation and/or the duty of loyalty and fidelity".

As Mr Clements' breach pre-dated RDF/RML's breaches, the Court held that Mr Clements was not entitled to rely upon those breaches; he had already destroyed the employment relationship through his own conduct.

Since Mr Clements was not entitled to rely upon the breaches by RDF/RML to terminate his contract, the contract terminated by virtue of RML's letter to Mr Clements dated 3 May 2007. RML were entitled to summarily dismiss on the grounds set out in that letter but also upon Mr Clements' prior breach of the implied duty of trust and confidence. Returning to the wording of the agreement dated 1 December 2005, as RML were entitled to summarily dismiss Mr Clements, he remained bound by the restriction in that agreement for a period of three years.

A new defence to constructive dismissal claims?

Although containing a word of warning against careless comments to the press, this ruling may give employers another potential defence in constructive dismissal claims. If the decision in this case is followed by Employment Tribunals, an employee cannot succeed in a constructive dismissal claim if he has first breached the implied duty of trust and confidence.

Permission to appeal has been granted in respect of this case.

For more information or advice, please contact Edward Benson or Sarah Houston.

¹ Malik –v- BCCI [1998] AC 20 per Lord Steyn

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