Management: Employment contracts - what's the real story?

Reports that Sven Goran Eriksson will be staying in Italy rather than joining Blackburn Rovers as manager have prompted rumours that the football club might sue him for alleged breach of contract.

The development further highlights the issues surrounding the roles and obligations of key employees that had already been raised by the departures of Michael Grade from Channel 4 and Chris Evans from the BBC's Radio 1.

Employees' rights on dismissal in breach of contract are often the subject of comment. The question less often raised is: what obligations do employees owe to their employers during and after the termination of their employment and what is the position if they fail to honour them?

Every contract of employment, has certain implied terms. Contrary to popular belief, a contract of employment does not have to be in writing in order to be valid. The terms implied include a duty of fidelity, which is owed by employees to their employer.

This heading covers a range of activities. It would prevent employees during the hours that they are contracted to work for the employer from working for anyone else without the employer's consent. This restriction would not normally prevent employees working for another employer during their spare time unless these activities seriously hamper the employer's business interests.

During the course of their employment, employees are free to seek employment with a competitor and they may take preparatory steps to set up in business on their own. These steps may include purchasing a shelf company or acquiring premises. The permitted range of preparations, however, does not stretch to activities such as offering employment to other employees or to the soliciting of the employer's clients.

Employees also owe a duty, during the course of their employment, even in the absence of an express term in their contract of employment, to keep matters relating to their employer's business confidential.

Breaching the implied terms of their contract of employment may, depending on the seriousness of the breach, cause employees to be dismissed for gross misconduct. In addition, the affected employee could be exposed to a claim for damages if the employer can show that it has suffered an identifiable and ascertainable loss.

The common belief is that if employees decide to leave without giving the correct period of notice required under their contract of employment, the employer has few remedies available to him. It is certainly true that no employer will succeed in obtaining an order from a court compelling an employee to work for the employer until the expiry of the notice period.

However, the employer is not precluded from suing the employee for breach of contract for any loss suffered as a result of that employee's early departure. In the case of junior employees the cost may relate primarily to the additional cost associated with recruiting a temporary replacement. However, in the case of senior employees the loss suffered to the employer's business by the unplanned departure and the consequent losses suffered may be more substantial.

If the employee has been solicited by another employer, the former employer may also be able to obtain damages from that employer for any loss suffered.

In order to do this the employer must establish that the new employer induced the employee to breach the terms of his contract of employment.

Ian Hunter

The author is an employment law specialist with the City law firm Bird & Bird