“Would I lie to you?”
For many years, it has been accepted by the courts that every employee is under an implied duty of good faith towards their employer. The extent of this duty has been tested by the High Court in the case of MPT Group Limited v Peel & Others. The court considered whether the employees had to answer honestly when directly asked by their employer whether they were going to set up a business in direct competition with their employer.
The case of MPT Group v Peel involved a number of claims including breach of copyright and misuse of confidential information. The focus here is the claim that the employees in question breached their contract of employment when they refused to disclose their true intentions.
In this case, two employees handed in their notices simultaneously and both subsequently ended their employment on 1 September 2016. Their contracts included restrictive covenants preventing them from soliciting or dealing with customers of their (now former) employer, MPT Group, for 6 months. After the expiry of this period they immediately set up a new company which operated in direct competition with MPT.
During their notice periods, the employer had asked both employees what they intended to do after their employment terminated. Both denied any intention of going into partnership together and went further, stating that they were going to being working in different fields, one as a freelance designer and the other claiming he would be building electrical control panels.
MPT alleged that the employees were collecting confidential data and conspiring to set up a business in competition during their notice periods. It was established that the employees did keep some of MPT’s confidential information until March 2017, over six months after the termination of their employment. At this point they disposed of the evidence meaning that MPT was unable to prove whether the confidential data had been misused in the setting up of the new company.
The judge granted a limited injunction to stop the newly set up company from using any drawings or plans in the course of its business.
Because the two employees had only set up their company after the expiry of the 6 month restrictive covenants, MPT Group could not claim breach of the covenants and instead claimed breach of contract, specifically the implied duty of good faith. However, the judge held in favour of the employees as he was reluctant to set a precedent for employees to be under a duty to reveal their true intentions to an employer.
In his justification of this finding, the judge pointed out that the law will “step in to prevent unfair competition or to hold employees to enforceable restrictive covenants”, but that employees are otherwise free to act as they please after their employment ends.
What does this mean for you or your business?
While employers can ask employees what their intentions are after the end of their notice period, an employee does not have to be honest about whether they are going to set up a competing business.
What is interesting in this case is that the employees were not especially senior. Had they been directors they may have been under a higher duty of fidelity to their employer and the court may have found in favour of the employer. However, until this theory is tested in court we will not be sure of the outcome.
What do you need to be doing now?
Because of this case, employers are going to more reliant on enforcing restrictive covenants and garden leave to protect their confidential information and client base. It is essential that employers check employment contracts from the outset of an employment relationship to ensure that the restrictive covenants are sufficiently protective while remaining enforceable and that there is a provision for the employee to be put on garden leave, especially if they hold a senior position within the business.
These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.
