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Mark Richmond v Selecta Systems Ltd [2018] EWHC 1446 (Ch)

In this case, HH Judge Paul Matthews (sitting as a Judge of the High Court) considered a series of claims arising from the dismissal of a long-term sales manager. The decision highlights the importance of well-structured negotiations in the run-up to employee termination, and raises novel issues about the handling of company-provided laptops, tablets, and mobile phones. Whilst employers are in principle entitled to check such devices and their associated online accounts for confidential business information, they also owe a duty of care to former employees. The Defendant’s managing director had breached this duty by changing account passwords and leaving the former employee unable to access his private messages.

Facts

The Claimant, Mr Mark Richmond, had been employed by the Defendant company, Selecta Systems Ltd, as a PVC component sales representative for over two decades. His success saw him promoted to sales director, though subsequent concerns about ‘typical alpha male’ behaviour [22] and a number of alleged incidents noted by HR led the company’s managing director, Mark Weihe, to terminate Mr Richmonds’ employment by early 2016. This ‘early retirement’ was announced through a press release and letters to customers soon thereafter [45], and a final payslip issued on March 31, 2016. In the ensuing litigation, Mr Richmond sought to enforce a generous termination agreement and challenged the employer’s access to several of his online accounts.

Negotiating the Termination Agreement

During a meeting on January 29, the parties reached an agreement in principle that the Claimant’s employment would be terminated, and that he would receive a compensation package. A further meeting on February 11 focused on discussing key terms. At that point, however, there was still significant disagreement between the parties, including but not limited to the amount of Mr Richmond's compensation, the duration of his non-compete obligations, and whether he could retain company assets including building materials and a Mercedes vehicle. Crucially, the Defendant’s managing director also insisted that any agreement would be conditional on clauses protecting the company’s reputation and confidential information.

Further negotiations and written communication ensued (particularly as regards tax and pension implications), until on 23 February, the Defendant wrote to withdraw their offer as a result of the Claimant’s alleged badmouthing of the company. Selectra’s head of HR subsequently wrote to inform Mr Richmond of his summary dismissal, as well as ongoing attempts to recover his company Mercedes.

Applying the ordinary principles of contract formation (RTS Flexible Systems Ltd v Molkerei Alois Muller [2010] 1 WLR 753) to the parties’ course of negotiations, HHJ Paul Matthews found that no binding agreement had been concluded: ‘the intention, objectively ascertained, of the parties was to make any [settlement] offer subject to contract’. [75] Neither the final amount nor details of the confidentiality and non-disparagement clauses had been agreed. As a result, Mr Richmond's claim for compensation failed, and he was ordered to pay the value of his company car.

Access to Company Devices and Related Online Accounts

During the termination negotiations, it became clear that the Claimant sales director had acquired customer information as well as discount pricing lists, which he kept at his home. Over the course of his employment, he had also been issued with two company iPhones and other electronic devices, which he was entitled to use for private as well as business purposes. As a result, the company was concerned not only about the physical copies of its customer and pricing information, but also whether such information had been stored electronically in the Claimant’s devices and his associated iCloud account.

Just before the initial meeting on 29 January, the managing director therefore confiscated a company iPhone 6 from the Claimant’s office. At the subsequent meeting on February 11, the Claimant was furthermore asked to return his company iPhone 4 and provide the Defendant’s managing director with its four-digit passcode. When further pressed for passwords to his AOL and Apple iCloud accounts, Mr Richmond supplied both, insisting that ‘he had nothing to hide’ [42].

When the employer’s managing director subsequently checked Mr Richmond's phone, no sensitive information was found in any of the online accounts. In an attempt to delete remaining customer contact details from the phone’s iCloud address book, Mr Weihe then changed the password in order to block access from other devices. Mr Richmond discovered what had happened shortly thereafter: in attempting to set up a new iPhone and download his music library, he could no longer access that information, and was informed by an Apple service team that his password could not be recovered.

HHJ Paul Matthews found that in the circumstances, the Defendant had been ‘entitled to protect its business … by accessing the telephone to discover whether there was any company information on it and if necessary delete it.’ This right extended to information stored in online services such as Apple’s iCloud [80]. At the same time, however, the company owed the Claimant a duty of care in exercising its rights. The Managing director had gone too far in changing the Claimant’s password and access settings. Neither the legitimate interest in protecting business secrets nor the fact that the Claimant had voluntarily surrendered his passwords could justify the resulting irreversible interference with personal internet accounts. [81]

The Claimant was therefore entitled to compensation for losses suffered as a result of the breach. As no specific value had been placed on the lost files (other than an iTunes library worth £600) and resulting inconvenience, damages were assessed at a total of £1000.

Comment

The termination process in this case was protracted and highly fact-specific. It nonetheless serves as a useful reminder of three important principles in structuring employee terminations, and drafting employment contracts and policies more generally:

  1. First, the need for clarity in negotiating termination agreements: whilst the lack of an agreement might appear attractive on the facts as no compensation was ultimately payable, the absence of an enforceable non-compete agreement also meant that Mr Richmond was able to join a potential competitor shortly after leaving the Defendant’s employment. [63]
  2. Second, the importance of having clear policies in place to deal with the private use of company-provided mobile phones and computers. HHJ Paul Matthews noted the widespread acceptance that such devices could be used for employees’ personal purposes, albeit subject to implied terms limiting use damaging to company’s interests or involving significant expense. Employers concerned to impose more detailed restrictions ‘should stipulate accordingly in the contract of employment’. [78]
  3. Third, the increasing significance of technical expertise in handling digital information: the decision clearly attributes the Defendant’s breach to its Managing director’s lack of IT experience, which led him to interfere ‘with systems he did not fully understand.’ [79] If in doubt, employers should seek technical advice and/or communicate with former employees to ensure that any interference with personal online accounts goes no further than what is required to ensure the protection of confidential business information.

The text of the full judgment is available here.

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