Law and Practice Disciplinary Violation - Essay Example

Law and Practice – Disciplinary Violation Introduction: This case concerns the issue of employee misconduct and dismissal in the case of Sandra, who obtained unauthorized access to confidential files and passed on the trade secrets contained therein to a competitor. The second concerns the issue of getting one of the directors of the Company to resign. Areas of law in first case: The relevant areas of law that will apply in Sandra’s case are the Employment Act of 2002, with the revised Dispute resolution (Regulations) 2004, which came into effect on October 1, 2004. Also relevant in this case is the Law of Confidence. Definition of law: The Employment Act pertains to the provisions governing employer-employee conduct and conditions at the workplace, including fairness and resolution of disputes. The Law of Confidence pertains to the issue of information that is deemed to be confidential and will include trade secrets, copyrighted and other sensitive information, including the right to its protection and remedy for the infringement through breach of confidence and trust by employees. Legal issues in the case of Sandra: Three issues arise (a) unfair dismissal of Sandra (b) breach of confidentiality (c) unauthorized transfer of information to Wizzam with potentially damaging effects on Osbut. (a) A new three step dispute resolution process for employers and employees under the Employment Act has been introduced as of October 1, 2004.1 According to these provisions, reasons for dismissal or disciplinary action must be put into writing, a face to face meeting must be arranged for discussing the dismissal and the employee must be given a chance to appeal. In the event an employer fails to follow the proper procedure and adhere to all three steps, then penalties will accrue to the employer while the employee may be automatically entitled to claims of unfair dismissal if he/she has been employed for more than a year at the firm in question. Moreover, instant dismissal of an employee, even in cases of gross misconduct, is automatically unfair unless at the very least, a two stage procedure is followed, wherein the employee is provided written notice of dismissal and provided the right to appeal. In cases of serious misconduct, it may be legal to dismiss an employee without notice, however it is better to suspend the employee first while investigations are carried out to ensure that allegations against the employee are substantiated. What must be considered in Sandra’s case is Alan’s summary dismissal, which has not allowed her the opportunity to appeal the decision to fire her. Continuous service with a Company entitles the employee to a policy of fairness in providing written notice of the reasons for dismissal and the opportunity to offer any defense. Most companies follow such policies, especially when the employee has been with the Company for a long time. Opportunity must be provided for the employee to appeal. Sandra’s contract specifies that accessing restricted files will constitute gross misconduct. Therefore, there is little doubt that her conduct falls into a category considered unacceptable by the Company and her contract that such unauthorized access to files would lead to summary dismissal. However, the ACAS Code of Practice on disciplinary and grievance procedures mandates that an employee must be given an opportunity to appeal a decision of dismissal, after receiving a written notice about it. Alan’s failure to do so is not in full compliance with the requirements of fairness from employers and could pose a problem and attract penalties. For example, the Employment Practices Data protection code states that: “employees are given the opportunity to challenge and explain information gained through monitoring if it is to be used in a way that might have an adverse impact on them.”3 Applying the above criterion, Alan has obtained the information against Sandra from his personal observation, nevertheless, it has had an adverse impact on her, so she should have been given the opportunity to explain, especially if she had been a good employee thus far. There is a duty of fidelity to an employer that is imputed upon an employee who deals with confidential information.4 In the case of Prince Albert v Strange5 (1894) 1 Mac & G25, it was established that in every contract of employment, there is an implied duty on the part of an employee not to divulge any information obtained in the capacity of employment. This is especially the case in respect of information which is so highly confidential that it amounts to a trade secret.6 The Law of confidence7 also protects trade secrets and divulging a secret will constitute a breach of confidence8, therefore, Osbut will have good grounds to support its dismissal of Sandra.9 A breach of confidence is in effect a breach of trust and good faith10 that has been exercised by Osbut in hiring Sandra. By joining Wizzam just one week after having been fired by Osbut and by providing the unauthorized information she obtained to the new Company, Sandra will be liable, as was the case in Saltman Engineering Co Ltd v Campbell Engineering Co Ltd .11 By providing Wizzam the information on the special procedure Osbut uses to manufacture its insulating material, has handed over the industrial technology without authorization from Osbut and will therefore be liable for a breach of confidence action against her.12 Information contained in the confidential files constitutes the “know how” for producing the insulation, and will therefore, automatically be construed to be confidential information13 when disclosed to an employee, whether intentionally or unintentionally.14 In certain cases, even the expression of ideas have been deemed to deserve protection under copyright15, therefore Osbut’s copyright will be infringed16 In some cases, a restrictive covenant can prevent an employee from divulging confidential information that has been obtained on the job, for example Corporate Express v Day.17 Alternatively, a specific express confidence clause in the contract could also serve as a bar for divulging of such information.18 Even assuming that Sandra’s contract with Osbut had no such clauses, she will be bound by a duty in common law, as specified by Judge Meggary in Coco v Clark19. In order to constitute a successful claim in confidence, the test laid out by Judge Meggary in Coco v Clark specifies three factors: (a) the information must possess the quality of confidence (b) the information should have been conveyed in circumstances denoting confidence (c ) the information should have been used in an unauthorized manner to the detriment of the party from whom it was obtained.20. Applying this test in Sandra’s case, it may be noted that the information contained in the files for which access was restricted imputes a quality of confidence. This is also in accordance with the ruling in the case of Saltman mentioned above, in which Lord Greene stated that confidential information would not be that which is “public property and public knowledge” but rather would be confidential because “the maker of the document has used his brain and thus produced a result which can only be produced by somebody who goes through the same.” Bearing in mind the fact that the information in question consists of those aspects of production and manufacture of insulation material which have been developed by Osbut and have given it an edge in the marketplace precisely because they are not freely available to the public or to competitors, the information would definitely have the quality of confidence. Secondly, the surreptitious manner in which Sandra has obtained the information in itself shows that the information was not intended for public consumption and therefore the obtaining of it will automatically fall into the category of confidence. However, the most important aspect of Meggary’s test is satisfied in Sandra’s case. The information was obtained in an “unauthorized” manner, since Sandra had prior warning that accessing the files would constitute gross misconduct. Moreover, precedent has also been established in the case of Thomas Marshall (Exports) Ltd v Guinle, to support an objective and subjective test to determine confidentiality, i.e, does the owner of the information have a reasonable belief that a release of the information would be harmful to him?21 In the case of Osbut, it may be clearly seen that the release of the information has enabled a competitor Wizzam to employ the same methods used by Osbut to gain an edge in the marketplace with its product, thereby acting to the detriment of Sandra’s employer, Osbut. This may counterbalance Sandra’s right appeal the dismissal, in a claim filed with the Employment Tribunal. Conclusion: The facts in the above case appear to suggest that Sandra is guilty of a breach of confidentiality, in direct violation of the terms of her contract. The unauthorized transfer of information to Wizzam provides a clear indication of the potential damage to Osbut. There is also a clear indication that Sandra has not been provided the right to appeal, however the facts appear to favor Osbut in the event of any action at the Employment Tribunal. B. The events of 16th February 2006: Areas of law in this case: The Companies Act is relevant, since Osbut is mainly interested in removing Candice from her position as Director. The Trustee Act of 2000 is also relevant to establish the fiduciary duties of a director. Definition of the areas of law: The Companies Act sets out the provisions by which Companies are to be governed, including appointment of Directors, articles of incorporation, rights of shareholders and procedures for legal action. The Trustee Act of 2000 sets out the duties and responsibilities of a trustee in administering the proceeds of the trust he/she is responsible for and the duties and obligations that are expected of him. Legal issues in this case: The major legal issues that arise in this case are (a) Burt’s negligence (b) Candice’s responsibility for losses incurred by the Company through her son’s negligence (c) breach of fiduciary duty of Candice. The negligence of Burt on the day of February 16th will be an issue that is likely to prove to be a liability for Osbut, because of the issue of vicarious liability that will accrue upon it. A provider of services is contractually liable for damages resulting out of the performance of that contract, per Section 2 of the 1982 Act and since Burt was working for Osbut on this occasion, Osbut, as employers will be liable for the damages Burt has caused.22 Sarah can press for damages under tort, both for the damage caused to her carpet and other parts of the room and most of all for the damages suffered by her son who has now lost his sight in both his eyes. Since this may be seen to be a question of harm caused due to the direct negligence of Burt, it will be a tortious act and damages payable are likely to be substantial, because this is not merely an economic loss for which no damages may be payable23, but a significant physical loss and the loss of her son’s eyesight. When an employee commits a tortious act while within the scope of his employment, the employer has been held to be vicariously liable.24 Moreover, since Osbut exercises the authority and control over the work that Burt is supposed to perform, it will be vicariously liable, as was the case in Mersey Docks and Harbor Board v Coggins and Griffith.25 Since Osbut will therefore be expected to pay for the consequences of the damages that Burt has caused to Sarah and her son, it is entitled to recover the costs from Burt.26 Burt is Candice’s son and as one of the Directors of the Company, Candice has a fiduciary duty to the Company, since under common law, the position of a director has been established27 to be similar to that of a trustee and the beneficiaries in this case will be the shareholders of the Company. In the case of Fales v Canada Permanent trust for example, the trustees were held to be liable for their failure to act responsibly and for their lack of duty of care to the shareholders.28 A high degree of impartiality and responsibility is expected of a person in the position of a trustee and a Director is in a similar position under common law.29 Therefore, Candice will be expected to waive personal considerations and look out for the interests of the shareholders first before the interests of her own son30. Section 317 of the Companies Act of 1985 also places on directors a statutory duty to reveal any interest, profit or financial advantage accruing to them by virtue of their position, and Candice must reveal the advantage is gaining through the Company bearing her son’s losses. Such losses repeatedly excused because the interests of the beneficiaries (shareholders) will be compromised. In fact, the Trustee Act in the UK also allows for appointment of a trustee by the Courts in the event that a trustee’s impartiality and duty of care is suspect for any reason.31 Justice Plowman in the case of Parke v Daily News Ltd32 held that the primary duty of the directors of a corporation is to their shareholders, superseding their duty to their employees. In the case of Mills v Mills, Latham CJ stated that a director must act “bonafide for the benefit of the company.”33 Therefore, as Director, Candice is expected to act in a financially responsible manner that will benefit the shareholder show are the beneficiaries of the Company. In the recent case of Chan v Zacharia, it was further held, as per Deanne J, that a fiduciary must not allow a situation to develop where there will be a conflict of his fiduciary duties with his personal interests and he/she must not make use of the fiduciary position to gain a personal advantage.34 Therefore, Candice is not only violating her fiduciary duty of care to the Company but is also using the influence of her position unlawfully to secure benefits for herself and her son, by expecting the Company to shoulder the financial burden for his misconduct and negligence35. Therefore, it would be appropriate if she is asked to resign from her position as Director. A Director can resign any time, although she can only be removed by the shareholders36. Alternatively, the Board of Osbut can also consider bringing a suit against Candice under Section 459 of the Companies Act of 1985, requesting the Court to pass an order decreeing that the affairs of the Company “are being conducted or have been conducted in a manner which is unfairly prejudicial to its members generally or of some part of its members.”37 The recent case of Bhullar v Bhullar has also re-established the court’s strict enforcement of the fiduciary duties of directors in the case of conflicts that arise when there is a clash of fiduciary duties and personal interests.38 Therefore a legal suit brought against Candice is likely to be successful, since it will be possible to establish breach of fiduciary duty. This will place Candice in a position where she will be forced to resign. Conclusions: The conclusion that may be drawn from the facts are that Burt has been guilty of negligence in the performance of his duties, which has caused losses for Osbut in the form of damages they are obliged to pay to the victims of Burt’s negligence. It is also clear that Candice is using her position of influence as Director of the Company to derive undue benefit for her son and herself and is therefore in breach of her fiduciary duties to the Company. Candice may be asked to resign voluntarily, otherwise, the Court may be approached to make a declaration of unfair prejudice derived by Candice which will force her dismissal. Bibliography Books/Articles: * Collins, Ewing and McColgan, 2001. Labor law: text and materials Hart Publishing * Farrar, J.H., Hannigan, B.M. (1998) Farrar’s Company Law Butterworths * Gurry, F, 1984. Breach of Confidence Clarendon Press. * Hull, J. (1998). 'Commercial Secrecy . Law and Practice” Sweet & Maxwell. * Hull, John (2001) Protection of Secrets in English Law * Notes Chantry (2006) Cases: * Aberdeen Railway Co v Blaikie Bros (1854), 1 Macq. 461 * Attorney General v Guardian Newspapers (1988) 3 All ER 545 * Bhullar v Bhullar (2003) EWCA Civ 424; (2003) WL 1202661 * Corporate Express Ltd v Day (High Court) QBD 2004 EWHC 2943 * Coco v A.N. Clark (Engineers) Ltd (1969) RPC 41 * Chan v Zacharia (1984) 154 CLR 178 * Fales v Canada Permanent Trust [1977] 2 SCR 302 * Frazer v Thames Television (1983) 2 All ER 101 * Faccenda Chicken v Fowler (1986) 1 All ER 617 * Frazer v Evans (1969) 1 All ER 8 * Great Eastern Railway Co. v. Turner (1872) 8 Ch App 149 * Mills v Mills (1938) 60 CLR 150 at 158 * Mersey Docks and Harbor Board v Coggins and Griffith (1946) 2 All ER 345 * Nahhas v Pier House (Cheyne Walk) (1984) 270 EG 328 * Prince Albert v Strange (1894) 1 Mac & G25 * Rob v Green (1895) 2 QB 315 * Re Lands Allotment Co [1894] 1 Ch 616 at 631 * Parke v Daily News Ltd (1962) 1 Ch 927 at 962-3 * Spartan Steel alloys v Martin Ltd (1972) 3 WLR 502 * Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203 * Thomas Marshall (Exports) v Guinle (1978) 3 All ER 193 Legislation: * Companies Act of 1985 * Employment Act of 2002 * Law of Confidence * Trustee Act of 2000 Websites: * Dismissal notice [online] available at: http://www.bizhelp24.com/business-law/sacking,-dismissal-redundancy.html * Directors responsibilities [Online] Available at: http://www.winters.co.uk/factsheets/directors_responsibilities.html. * Legal protection [online] available at: http://www.kensingtonswan.com/Publications/Intellectual%20Property/Confidentiality%20and%20copyright.htm * www.dti.gov.uk. 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