Khan & Anor v Landsker Child Care Ltd – Competing with your employer and breach of contract

The case of Khan & Anor v Landsker Child Care Ltd in the Employment Appeal Tribunal concerns the law relating to unfair dismissal and, specifically whether preparing to set up a business in competition with your employer can be construed as gross misconduct and/or a breach of contract. Further, it takes a look at what kind of information an employee learns at his employer can be deemed confidential.

The Employment Appeal Tribunal, in this case, quashed the finding of unfair dismissal as what the Claimants had engaged in (the planning of a competing business and the use of financial figures from their employer to do so) in the EAT’s opinion neither constituted gross misconduct nor breach of contract.

The facts of Khan & Anor v Landsker Child Care Ltd

Mr Khan commenced employment with Landsker Child Care Ltd (“the Respondent”) in 2003 and Mr Hemmings commenced employment with the Respondent in 2002. Mr Khan and Mr Hemming will be referred to heretofore as “the Claimants”. The Claimants, at the time of their dismissal, were employed as care home managers.

In May 2010 an employee of the Respondent found that the Claimants were preparing to set up a business in competition with the Respondent. One of the Claimants’ private emails had been accessed and a business plan was found. This business plan utilised financial figures that the Respondent believed to be significantly similar to its own financial figures for the costing of care homes. The Claimants were investigated by the Respondent and were dismissed on 8 June 2010 for gross misconduct.

The Claimants subsequently submitted a claim to the Employment Tribunal for (among other things) unfair dismissal. The Employment Tribunal found in the Respondent’s favour, considering that an adequate investigation had been undertaken and that the Respondent had a genuine belief in the Claimants’ guilt. The Claimants appealed on the ground that their actions did not constitute a fundamental breach of contract and that it was therefore unfair to have dismissed them for gross misconduct.

The law relating to preparing to set up your own business in competition with your employer

The Claimant, in the present case, relied on the case of Laughton and Hawley v Bapp Industrial Supplies [1986] ICR 364. Laughton laid down precedent that an employee making preparations for future business to be conducted after his employment comes to an end is not in itself necessarily gross misconduct and that, further, the fact that an employer considers a piece of information to be confidential does not necessarily render it so. Making preparations for business, such as drawing up business plans (and even contacting future customers or suppliers) doesn’t therefore necessarily constitute breach of contract. Further to this, the fact that it doesn’t necessarily constitute a fundamental breach of contract may render a dismissal unfair (if the employee has been dismissed for gross misconduct).

Furthermore, an employee working for a competitor part-time in their spare time doesn’t necessarily constitute breach of contract unless doing so is causing substantial harm to their employer’s business.

The Employment Appeal Tribunal’s decision in Khan & Anor v Landsker Child Care Ltd

The Employment Appeal Tribunal found in the Claimants’ favour. The Employment Tribunal had not considered the precedent set by Laughton and had thus made an error of law. The Employment Tribunal remitted the matter to the same Tribunal.

Our specialist employment lawyers’ thoughts on Khan & Anor v Landsker Child Care Ltd

This case again shows, along with Ranson v Customer Systems plc (a Court of Appeal case just handed down) that the fact that an employee is found to be considering setting up a competing business doesn’t necessarily mean that a finding of gross misconduct is appropriate. Such a finding, and termination of employment, may render a finding of unfair dismissal by the Employment Tribunal. The employer needs to demonstrate a disclosure or misuse of confidential information (an objective test) and serious harm to its business as it currently stands (among other things).