Secret profit

In English law, a secret profit is a profit made by an employee who uses his employer's premises and business facilities in order to engage in unauthorised trade on his own behalf. A common example is a bar manager who purchases beer from a brewery in his own right and sells it in the bar in competition with, or in preference to, that of his employer. The profit made thereby is a secret profit.^[1][2][3]

Where the employee deceived a customer before 15 January 2007 he could be prosecuted for obtaining property by deception, the property being the customer's money and the deception that he was selling his employer's produce.^[4] Such offences were predicated on the presumption that a customer would not purchase illicit goods were he aware of their true provenance.^[5] The offence of obtaining property by deception has since been repealed and is now replaced by the offence of fraud by false representation.^[6]

The employee is a constructive trustee of the profit for the employer and the employer has proprietary interest in the profit. Hence, it is theft from the employer and the profit is not merely a civil debt owed by the employee to the employer,^[2] according to the case of FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45. Where more than one person is involved there could be a conspiracy to defraud^[7] and, since the coming into force of the Fraud Act 2006, the employee could be guilty of fraud by abuse of position.^[8]

• J. C. S. (1986) "Theft: whether employee received property on account of his employer", Criminal Law Review, 476-379
• Law Commission (2002) Fraud, (Law Com No 276)
• Martin, J. E. (1987) "Constructive trusts of the beer money", Conveyancer and Property Lawyer, 209-211