The High Court has held in MPT Group Ltd v Peel and Birtwhistle and anor that although the duty of good faith includes the duty to answer questions truthfully, that does not mean that employees who have resigned from their job have to explain confidential and/or nascent plans to set up in lawful competition with their former employer.
Basic facts
Mr Peel worked as the technical director for MPT Group Ltd, a leading producer and supplier of mattress machinery, equipment and parts to the mattress manufacturing industry. Mr Birtwhistle was employed as its Technical Sales Director. Both men were subject to restrictive covenants that prevented them from soliciting or dealing with customers with whom they had personally dealt for a period of six months.
After handing in their notice on 4 August 2016, both men denied, when asked by their employer about their future intentions, that they intended to set up in business together. Their employment came to an end on 1 September and on 3 March 2017, they set up MattressTek Limited in direct competition with MPT. Mr Peel was the new company's Technical Director and Mr Birtwistle its Sales Director.
MPT’s claims
MPT sought an injunction to prevent the men from benefitting from alleged multiple breaches of their contracts. For instance, divulging the company's confidential information to third parties; lying about their future intentions when asked by MPT; and breaching the company’s copyright by copying and retaining MPT's drawings and other databases.
Specifically, it asked the court to issue an interim injunction prohibiting the men and the new company from soliciting, dealing or contracting with MPT's named customers and suppliers; and an unlimited injunction prohibiting them from disclosing or using MPT's confidential information.
High Court decision
The High Court judge held that although the duty of “good faith” includes the duty to answer questions truthfully, employees were also entitled to refuse to answer questions about their private lives. Specifically in this case, he was “far from satisfied” that these employees were under a duty to disclose their true intentions to MPT.
This was because the law only operates to prevent unfair competition or to hold employees to enforceable restrictive covenants or to protect confidential information. Likewise, employees must not induce others to breach their own contracts of employment, conspire to cause their employer injury or, in most cases, solicit their colleagues for their new enterprise.
However, apart from these requirements, employees are “otherwise free to make their own way in the world”. That being so, the judge was reluctant to hold that, when asked a straight question about their intentions, an employee was under a contractual obligation to explain their own confidential and/or nascent plans to set up in lawful competition with their former employer.
The judge did, however, grant a limited injunction to prevent the men from retaining, copying, using, manufacturing machines in accordance with and divulging to any third party MPT’s technical drawings of its machines; its customer and supplier lists; and its bill of materials database.
Comment
This is one of a number of recent cases where employers have tried to argue that there is an implied obligation on employees to incriminate themselves about their lawful, but unwelcome, plans. The courts have applied a sliding scale based on seniority – namely the more senior you are, the more likely you are obliged to volunteer your plans. It is interesting to see the court pushing back in this case as both men were directors and therefore senior. That said, it should not be seen as the start of a wider reversal of that sliding scale approach.