Legal Updates

Commercial Law – Employment Law – Interpretation of Terms of Employment Contract Re Designing a Product which was not part of Employees Duties – Employee doing Work in his own Time - Breach of Contract - Competition Law – Commercial Litigation

The case of Helmet Integrated Systems Ltd v Tunnard and Others [2006], involved a dispute over what actions could be allowed under the terms of an employment contract. The claimant (“HISL”) produced and sold protective equipment. In 1993, it commissioned a new helmet design which was successfully marketed especially to the London Fire Brigade. The defendant was a senior salesman with the claimant.

Whilst in the claimant’s employment, the defendant had the idea for a new modular helmet. He believed that his employers were not interested in developing a new helmet, particularly on the European market, where he perceived there to be a gap for such a product to gain a foothold.

Between September 2001 and the 28th of February 2002, the defendant took a number of steps to advance his idea. He obtained some funding and arranged for product designers to prepare initial drawings of his concept. He handed in his notice of resignation on the 1st of February 2002 and worked until the end of his notice period until he left on the 28th of February.

The defendant incorporated Modular Helmet Systems Ltd (“MHSL”) two months after his departure from the claimant. Shortly thereafter, a rival company to HISL, Lion Apparel Inc (“Lion”) invested in a majority shareholding in MHSL. The claimant brought claims alleging that the defendant had acted in breach of his duty of fidelity in developing a safety helmet which would be in competition with HISL's safety helmet, and had acted in breach of his fiduciary duties in failing to report his activities while still under HISL's contract of employment.

Those claims were rejected by the judge in the patents county court.  He determined that acts of preparation before departure were not actionable and that there was no breach of duty of good faith or fidelity on the part of the employee. He held that the employee was allowed to decide to set up a business in competition with his employer and that the preliminary steps taken to do so were permitted. He also concluded that there was no breach of any fiduciary duty because such an obligation had to be confined to his duty as a sales person.

The claimant appealed against this decision.  On appeal the claimant relied on the fact that the defendant's printed contract of employment provided that it was his duty to advise his employer on the activities of competitors and their pricing structures. They argued that he was, therefore, under a duty to report such activities whether they were undertaken by a competitor or by himself as part of his plan to compete with his former employer.

The appeal was dismissed.  It was held:

§             Under the circumstances, although the defendant's activities would have amounted to competitor activity if undertaken by a competitor (and he therefore would have owed a fiduciary obligation not to misuse information about such activity for his own benefit or for the benefit of someone other than the claimant), it did not mean that he was under any obligation to inform HISL of his own activities.

§             The words of the job specification did not restrict the defendant's freedom to prepare for competition on leaving. He was employed as a salesman not a designer and it was never in contemplation of either party that he would develop a helmet. Clear words were needed to restrict the ordinary freedom of an employee who was quitting his employment and setting up in competition to his former employer, which the defendant's job specification did not do.

§             He was under no relevant fiduciary duty to the claimant. The defendant owed no fiduciary obligations in relation to the development of a preliminary concept for a new helmet. Therefore he was not in breach of any such obligation by seeking to raise funds for such a project while still in employment. The defendant was working on his idea in his own time and as a result the concept developed belonged to him.

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© RT COOPERS, 2007. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.