Alex Threfall’s claim against former employer ECD Insight Limited (ECD) and its director Glenn Whitney was for: (i) an 8% share in equity of ECD, increasing to 20% from November 2005; (ii) dividends; (iii) a termination payment; and (iv) a bonus payment in respect of the final three months of his employment.

ECD counterclaimed for breach of contract and breach of fiduciary duty and / or good faith.

Facts

The claimant was employed by ECD from 3 February 2003 to 19 September 2008. One of the claimant’s duties whilst working for ECD was that of an events moderator.

The claimant was entitled to 8% of the equity of ECD on the condition that he remained in employment for a minimum period of 2.5 years. The claimant claimed that this was revised in an email from Mr Whitney on 22 November 2005 in which the stake was increased to 20%.

In June 2008 the claimant negotiated a contract between ECD and Eurofinance to moderate an event which (unintentionally) took place in October 2008 after the claimant’s employment with ECD ceased. The claimant also emailed OECD (a customer of ECD) asking them to consider him for event moderation work after leaving employment with ECD.

Decision of the Court

The Equity Stake

According to the defendants the increased equity stake was never implemented because it was conditional on a number of changes including: changing the business from a limited company to a limited liability partnership and the claimant agreeing to a longer notice period. The Judge did not accept this explanation as the email contained no reference to and no evidence was provided of any pre-conditions or change in business structure.

The claimant relied on subsequent conversations, in particular an email from Mr Whitney on 13 February 2008 which purported that the business could be worth £3m to which the claimant’s share would be worth £600,000 (i.e. 20%). The claimant also sent an email to the defendants, upon serving his notice, about his 20% stake in which there was no hint of a dispute.

Dividends

The court found that although there is no mention of dividends in the contract, the grant of an equity stake means that the claimant was entitled to them.

Bonus Payment

The employment contract provided for bonus payments and the claimant received quarterly bonuses throughout his employment. The company’s accountants had even made a provision for the claimant’s 2008 third quarter bonus before Mr Whitney intervened saying it was not due as a result of the claimant’s underperformance. This was not accepted by the court due to lack of evidence and because underperformance had not previously led to deductions.

The court did however consider Mr Whitney’s additional explanation to be reasonable, in that during the claimant’s notice period he had been diverting work and clients away from ECD (see below).

Termination Payment

The employment contract did not make provision for termination payments and therefore the claimant was not entitled to this.

In addition to the above, Mr Whitney was not held to be personally liable as the claimant’s contract was with ECD.

The Counterclaim

The court held that the claimant was not a director and did not owe any contractual obligations which would give rise to a fiduciary duty.

The Judge also found that the claimant’s event moderation work only became part of ECD’s activities whilst the claimant was employed by them and ceased when he left as they no longer had his expertise. As the restrictive covenant was limited to cover only “management and communications development” (ECD’s core work) there could be no breach or forfeiture. Furthermore, the claimant did not leave ECD to engage in event moderations but to be a presenter / anchor for Reuters and therefore the forfeiture clause could not be triggered.

The claimant did however act in breach of the implied term of good faith during his employment by carrying out the Eurofinance event moderation after he had left ECD; thereby diverting fees away from and breaching a contractual obligation to ECD.

Whilst there was no prior agreement with OECD to moderate a specific event, contacting them fell within the definition of soliciting; thus putting the claimant in breach of the implied term of good faith (again).

Practical Takeaways

The most important considerations following this case revolve around drafting. In particular any agreement between an employer and employee or business partners should be documented in an agreement signed by both parties. Furthermore, employment contracts should be drafted with care, particularly important clauses such as restrictive covenants. Employers should ensure that such clauses meet with their needs (whilst still ensuring they are enforceable).

Finally, care should be taken when sending emails or other communications as you never know when either you or the other party may come to rely on their contents.

For solicitor advice on employment contracts, or specific aspects of  such contracts including bonus payments, Gannons Solicitors provide expert help. You may also find their employment contract checklist helpful.