Faccenda Chicken Limited ~v~ Fowler [1987] Ch 117, [1986] 1 All ER 625 is such the defining case when it comes to consideration of the obligations of trust and confidence in an employee that there have been numerous cases in the years since where one has to wonder whether the employee was so much aware of his obligation to his employer in this respect that he may deliberately have organised himself to try and work around the restrictions presented by Faccenda.
Although not strictly relying on Faccenda, (because the learned judge had more particular and express contractual obligations to rely on than duties implied by Faccenda) the decision in Excelerate Technology Ltd v Cumberbatch & Ors [2015] EWHC 204 (QB) once again demonstrates the short shrift the courts will give to employees who fail in their duty of trust and confidence to their employer.
Excelerate is a technology company providing an innovative, niche source of broadband via satellite to civilian emergency response vehicles and Mr Cumberbatch, being its technical director, was the possessor of key confidential information material to Excelerate’s business. It must therefore have come as something of a surprise to him when, in July, 2011, he was informed that his position had been identified as redundant following a review by management consultants.
He was immediately placed on gardening leave while his solicitors negotiated a severance package which extended his post-employment restrictive covenants. He received £137,500 including £62,500 that was specifically referable to his acceptance of post contractual termination covenants being extended until 31st July 2012. He covenanted as follows:
- non-compete: not to be employed or engaged by or otherwise interested in or concerned with any concern which competes with any business of the Company in which he was involved during the last 12 months of his employment;
- non-dealing: not in competition with any business of the company in which he was involved during the last 12 months of his employment to deal with or accept orders from any third party with whom he had personal dealings within the last 12 months of his employment and who was a customer, agent supplier, investor or distributor of the Company or who was negotiating or contemplating doing business with the Company;
- non-solicitation: not in competition with any business of the Company in which he was involved during the last 12 months of his employment solicit business or orders or canvass or facilitate the soliciting or canvassing of business or orders from any third party with whom he had dealings with during the last 12 months of his employment and who was a customer, agent supplier, investor or distributor of the Company who was negotiating or contemplating doing business with Company.
Remarkably, (and this is where Faccenda seems to have written the script), Mr Cumberbatch was already putting in place the vehicle by which he was going to attempt an avoidance of his obligations by forming another company, Red Foot Technologies Limited, in which he planned to be a shadow director. The managing director of Red Foot was Mr Osmond.
During the traumatic month of July 2011, Mr Cumberbatch suddenly made 14 phone calls and sent 8 texts via his Excelerate mobile phone to Mr Osmond; requested, obtained and retained highly confidential information concerning the end dates of vital contracts in which Excelerate was engaged and, almost before the ink was dry on his settlement agreement with Excelerate, registered the Red Foot domain name. Red Foot itself was incorporated just 5 days after the compromise agreement was signed.
All this came to light from some careful forensic research on the part of Excelerate when, in due course, they found themselves losing business to Red Foot. The learned judge found that in a number of clandestine meetings and discussions which must have taken take place between Mr Cumberbatch and Mr Osmond in July whilst Mr Cumberbatch was on gardening leave and under fiduciary and contractual duties to the company, he severely breached those obligations.
The judgment is a model of judicial restraint in the choice of words and the judge was so far at pains to explain his rejection of Mr Cumberbatch’s evidence that he undertook a quite extensive review of his role in assessing the credibility of witnesses. The judgment is therefore a useful resource in that respect as well.
The balancing act lawyers perform when drafting restraint clauses in contracts of employment is to juxtapose the rights of the employer to protect its business with the need of the employee to earn a living after the contract has come to an end. Over the years, there seems to have been a pendulum swinging in the courts: sometimes towards protection of the employer’s business and other times towards the needs of the employee. It’s a hard job but Mr Cumberbatch seems to have scored one for the employers in showing why such protection is needed. The judge held that he should pay back all the money he had received under the settlement agreement with interest and costs awarded on an indemnity basis. He and Mr Osmond are now bankrupt and Red Foot is in liquidation.