Employees’ duty to reveal intention to compete

12 July 2017

Mr Peel and Mr Birtwistle were the Technical Manager and the Technical Sales Manager respectively at MPT Group (MPT). They resigned. Almost immediately after their six-month restrictive covenants expired, they and some others incorporated a company called MattressTek Limited – a business that would be in direct competition with MPT.

MPT Group Ltd v Peel

Mr Peel and Mr Birtwistle were the Technical Manager and the Technical Sales Manager respectively at MPT Group (MPT). They resigned. Almost immediately after their six-month restrictive covenants expired, they and some others incorporated a company called MattressTek Limited – a business that would be in direct competition with MPT. 

MPT brought a High Court claim based on a number of allegations, including that the men had breached their contracts by failing to answer questions truthfully about their future intentions. One had said that he wanted to work freelance; the other said he’d been offered other work. Both had denied any intention of going into partnership together.

Did that lack of candour breach their duty of good faith? Were these employees under a duty to disclose their true intentions?

It seems not. The High Court said that it would be reluctant to hold that a departing employee is under a contractual obligation to explain his own confidential plans to set up in lawful competition. The law will step in to prevent unfair competition, or to protect confidential information, or to hold employees to restrictive covenants (as long as they are reasonable). But employees are otherwise free to make their own way in the world. The Court was ‘far from satisfied that these employees were under a duty to disclose their true intentions to MPT’. 

It’s a decision that might have been different had the employees been company directors, for example. The fiduciary duties owed by the most senior individuals within a company could often include disclosing an intention to compete.


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