Employees not under a duty to disclose plans to set up in competition

Posted by Heather Welham on
The High Court has shown its reluctance to hold that departing employees are under a contractual obligation to disclose their confidential plans to set up in lawful competition and concluded that this does not amount to a breach of the duty of good faith.

In the recent case of MPT Group Ltd v Peel & others [2017] EWHC 1222 (Ch) the High Court was asked, amongst other things, to decide whether two employees, Mr Peel and Mr Birtwistle, were under a duty to disclose their intention to compete with their employer.  

MPT is a leading producer and supplier of mattress machinery, equipment and parts of the mattress manufacturing industry. MPT sought injunctive relief against Mr Peel and Mr Birtwistle. The former employees, who worked as managers for MPT, were both subject to post-termination restrictive covenants that prevented them from soliciting or dealing with customers whom they had personally dealt with at MPT for a period of six months after their employment with MPT came to an end.

MPT alleged that the former employees had copied a significant amount of the company's data including databases of customers and suppliers, machinery drawings, manuals, component lists, price lists and discounts, sales quotations, and orders before leaving MPT.  Further, whilst still employed by MPT they were asked about their future plans; Mr Peel said that he wanted to be a freelance CAD designer working from home and Mr Birtwistle said that he had been offered a position doing panel writing. A few days after their restrictive covenant period expired Mr Peel and Mr Birtwistle incorporated a business in direct competition with MPT.

MPT alleged that Mr Peel and Mr Birtwistle had misused and divulged confidential information, infringed MPT's copyright and database rights, and conspired to use unlawful means with the intention of injuring MPT. In addition, MPT brought it to the Court's attention that the former employees had failed to answer questions truthfully as to their future intentions and submitted that it was an incident of the duty of good faith to answer questions from their employer truthfully meaning that Mr Peel and Mr Birtwistle had acted in breach of this duty.

The main point of interest in this case is that the High Court was not satisfied by the claimant's argument that Mr Peel and Mr Birtwistle were under a duty to disclose their true intentions to MPT. A limited injunction was however granted until trial to prevent Mr Peel and Mr Birtwistle retaining, copying, using and divulging to any third party MPT's technical drawings, customer lists, supplier lists and bill of materials database; restriction was also placed on the Defendants manufacturing machines using this information.

Mr Pepperall QC held that the courts can only interfere with employees' freedom in so far as to prevent unfair competition, to hold employees to enforceable restrictive covenants and to protect confidential information. The High Court was reluctant to go any further and decided that Mr Peel and Mr Birtwistle's contractual obligation to act in good faith did not extend to a duty to disclose their confidential plans to set up in competition in the future even if asked the question.

It is notable that Mr Peel and Mr Birtwistle, although senior employees, were not directors of MPT. It is likely that the Court would have looked at the position differently if the case had involved directors of the company as, in addition to contractual post-termination restrictive covenants, they would have owed fiduciary duties to their employer including a duty to act in the best interests of the business.

This decision is a reminder to employers that employees may not always tell the truth when asked about their future plans, but that there is no obligation on them to do so. Employers should therefore be careful when dealing with potentially suspicious situations and should ensure their contracts of employment contain enforceable restrictive covenants and confidentiality clauses.  

About the Author

Heather is an Associate in the Commercial Litigation team specialising in contractual disputes.

Heather Welham
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