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Can a senior employee be ordered to pay back his past contractual remuneration to his employer as a remedy for breach of fiduciary duty, in particular a duty to confess his own wrongdoing?

There has been an increasing trend over the past few years for employers, outraged at the belatedly discovered wrongdoing of a trusted senior employee, to not only seek to justify summary dismissal on the basis of after-discovered gross misconduct but also to go a step further and try to recover the salaries or bonuses already paid to the employee prior to discovery of the misconduct.

The potent cocktail of substantial sums of money, murky transactions, volatile employment relationships and mercurial billionaire owners means that football is an inevitable testing ground for the law in this area.

In Milanese v Leyton Orient Football Club Ltd [2016] EWHC 1161 (QB), Whipple J. dismissed the Claimant’s claim for wrongful dismissal (finding the Club was entitled to dismiss him for gross misconduct concerning a third party’s dealings with an Academy Player). It is to be noted that the allegation that the Claimant had breached or put the Club in breach of the Football Association’s various regulatory provisions did not take matters any further – the Club had not been fined for any of the alleged breaches, and there was no evidence that it would be. Mere breach of the rules was not enough to establish gross misconduct, which was defined in the contract as being limited to exceptionally serious misconduct.

Whipple J dismissed the Club’s wide-ranging counterclaim for breach of fiduciary duties.

The Club had contended that as the Claimant, its former Director of Football, was responsible for recommending which players were bought and sold and advising the Board and owner as to the terms of the transactions he owed the Club fiduciary duties including a duty to confess to his own breaches of duty. Had he confessed to his breaches of duty he would have been dismissed immediately and the proper remedy was said to be repayment of the entirety of the salary and benefits he had received from his employment. The Club also sought an order that the Claimant reimburse the Club for all remuneration paid to a player bought at the Claimant’s instigation on the basis that the Claimant had breached his fiduciary duties in the course of the acquisition..

Whipple J., accepting the Claimant’s arguments, applied the principles laid down in University of Nottingham v Fishel [2000] ICR 1462, in which it was held that, as the employment relationship is not typically of a fiduciary nature, fiduciary duties will be owed only if the terms of the contract of employment require the employee to wholly disregard his own interests but the scope of those duties is necessarily circumscribed by the terms of the contract – new or inconsistent obligations cannot be imposed.

Whipple J held that the terms of the contract were not such as to impose fiduciary duties. Moreover, she held that there was no basis in the Claimant’s contract for a superimposed fiduciary duty to report his own misconduct, and even if there was it would not extend to the type of wrongdoing the Court had found to be gross misconduct under the contract. She did not find it necessary to express a view on the Claimant’s argument that fiduciary duties owed by an employee are necessarily of a proscriptive rather than prescriptive character and so a positive obligation to confess wrongdoing should not be imposed upon a fiduciary who is not a statutory director.

Whipple J further held that even if the Claimant had owed fiduciary duties, he would not have been required to pay back his salary – he had provided his services to the Club in return for the remuneration and thereby given consideration for the salary he was paid. In these circumstances, the salary should not be treated as profits deriving from breach of fiduciary duty.

Milanese provides a useful example of the need to treat the contract of employment as the source of both contractual and fiduciary duties, even for employees in charge of major financial decisions, rather than seeking to create a set of super-added, one-size-fits-all fiduciary duties.

Thomas Croxford and Nick De Marco (instructed by Centrefield LLP) represented Mr Milanese.

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