Employers are notoriously at a disadvantage when an employee decides to leave. Whilst, it is hoped, an employer has protected its position by non-compete and other clauses in the employment contract it is clear that, beyond these measures, an employee’s duty of fidelity is not an absolute one.
Background
In MPT Group Ltd v Peel, Birtwistle and Mattress Tek Ltd [2017] EWHC 1222 (Ch), the employees were subject to restrictive covenants that prevented soliciting or dealing with customers they had personally dealt with for six months. Before leaving MPT, they 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. After the six months elapsed they incorporated MattressTek Limited in direct competition with MPT.
When questioned by their employer as to their intentions when their employment terminated (six months earlier), both employees lied stating that they had no desire to go in to the business on their own account and denied going into partnership.
On the hearing of MPT’s injunction application to prevent P and B obtaining unfair advantage through misuse of confidential information, the question arose as to whether the employees were contractually obliged to answer questions truthfully about their future intentions. The Court held that the duty did not include a duty to disclose details of an employee’s intention to lawfully compete in the future (after expiration of his covenants).
It seems that whilst an employee is, during employment, subject to an implied duty of fidelity which could include a contractual duty to answer questions honestly, there are limitations on the duty. It is well known that the duty does not extend to a requirement that an employee report their own wrongdoing or that of fellow employees.
An employer cannot compel an employee to be wholly honest with it and in that event, cannot obtain the information it may need to take steps to protect itself from future competition.
Comment
It is important for employers to be aware that whilst there is a general implied duty of fidelity and good faith in any employment relationship, this does not extend to a contractual obligation on an employee to explain their own confidential plans.
The law will usually step in to prevent unfair competition or to hold employees to enforceable restrictive covenants or to protect confidential information, but outside of this a departing employee is not obliged to tell the employer about their next career move.
A clear and unambiguous express duty to disclose future plans may, in theory, provide some form of legal protection if the employee misleads an employer.
Had the employees been company directors the tribunal would have decided differently – fiduciary duties owed by the most senior individuals within a company often include disclosing an intention to compete.
_________________________
Sanjay A. Sakhrani
Barrister-at-Law
Employment Law Update 