You make an invention. You set up in business with your best friend. The business is doing very well. Your friend disappears with company data and equipment and attempts to set up in competition. You find out that your friend was holding out as the inventor and key decision-maker. There is no Director’s Service Level Agreement, no Shareholder’s Agreement, nothing is in writing. What is to be done?
A few years ago, our client invented a life-enhancing medical product. It was a great success and orders started to flood in at such a speed she realised she could not manage the business on her own. She had a long overseas trip coming up to negotiate a manufacturing contract, so she asked a long term friend to step in and assist with the administration and daily running of the business whilst she was away. To enable her friend with decision-making powers she appointed her as Director on Companies House and gave her full access to all company data.
The company was based in an open plan co-working space. When our client returned, she was greeted by fellow co-working businesses with great surprise. They thought she had moved out! Her friend was not seen whilst she was away. There were reams of unopened letters. Her friend kept in touch with her whilst she was away, assuring her that everything was going smoothly…
The client contacted her friend, but could not get hold of her. She left messages, sent emails, visited her house – she was nowhere to be seen. The main company laptop with the company database was gone. To add insult to the injury, potential clients started to write to her stating that they had obtained more competitive quotes elsewhere and will not be proceeding with their orders.
The police were informed, the friend was located and the laptop was retrieved. Unfortunately, a simple examination of the activity on the laptop made it quite clear that the company database was copied and backed up on an external hard drive, and that the fugitive friend was contacting clients and suppliers whilst setting up in direct competition. She was holding out as the inventor of the product and made several highly derogative statements about our client, the real inventor, on social media, and via email to several key stakeholders in the business. She did not respond to the Cease and Desist letter we prepared and sent by Recorded Delivery and via email.
The friend was also presented with a letter terminating her employment as Director for gross misconduct. This enabled our client to remove her as Director from Companies House, to block her company card and remote access log-ins, and to inform clients of her departure.
We prepared an urgent application for an injunction and were successful in obtaining an interim order for the return of other company property, and dealing with the aspect of the impersonation and slanderous comments. We also managed to obtain permission to serve the Court Order on the opponent via social media – namely, via a direct message on Facebook. The message was read and the Court was satisfied that the order was served – as the opponent also proceeded to make posts stating her outrage and disappointment with our client!
Sadly, the biggest and irreversible damage was caused – the friend proceeded to set up in competition and it took our client a long while to regain the goodwill and custom of many clients. In the absence of Director’s Service Level Agreement or Contract of Employment, with appropriate restrictions on competition and solicitation, there was nothing that prevented her friend from using the company data. There are some challenges in enforcing non-compete and non-solicitation clauses – but it is certainly better to have them.
In addition, she issued Employment Tribunal proceedings for unfair constructive dismissal – these were dealt with swiftly as the claim on that occasion was vexatious and an act of revenge. Besides, the claimant did not have the requisite qualifying length of service.
In this, and most cases, a Director who works in the business and receives a salary from the company is classed as an employee. From April 2020, all employers need to provide written particulars of employment to all “workers” – this includes company employees and individuals who are contracted to provide services to the company but are not running their own business. If you or your co-Directors do not have appropriate contracts in place, you may wish to think about the risks outlined in this case and put appropriate measures in place.