In the case of MPT Group Ltd v Peel and others  EWHC 1222 (Ch), the High Court was asked to decide whether employees were under a duty to disclose their intention to compete to their employer.
The facts of the case were that Mr Peel and Mr Birtwistle were employed by MPT Group Ltd (a company that produces and supplies machinery, parts and equipment to the mattress industry) in management positions. The employees resigned from their positions on the same date, Mr Peel giving the reason for his resignation as wanting to work from home and spend more time with his family, and Mr Birtwistle advising he had been offered a position doing ‘panel wiring’. They denied that they were leaving to form a partnership/start up their own business in competition with MPT.
Both Peel and Birtwistle were subject to extensive confidentiality clauses and restrictive covenants within their contracts of employment, to the extent that they were prohibited from soliciting or even dealing with customers with whom they had personal contact, for six months.
After the relevant period had expired however, Peel and Birtwistle incorporated MattressTek Ltd, a company that was in direct competition with MPT, and began selling complex mattress machines. It further transpired that prior to leaving MPT, both men had copied a large amount of company data which included client and supplier databases, price and discount lists, sales quotations and orders, machinery drawings and manuals, and other documentation crucial to MPT’s business.
MPT sought an injunction against the men based on the misuse of confidential information, breach of restrictive covenants, and also upon a breach of the duty to answer questions truthfully. In particular they sought an interim injunction prohibiting Peel, Birtwistle and MattressTek from soliciting, dealing or contracting with MPT’s customer and suppliers, and an unlimited injunction preventing them from disclosing or using MPT’s confidential information.
They further argued that Peel and Birtwistle must have been in breach of their contractual terms as it would ordinarily take around 18 months to set up one machine from production to sale. It therefore followed that it wouldn’t have been possible for the men to have done this themselves without using the Company’s confidential information. Peel and Birtwistle countered however that they had been working 12 hour days on most days of the week to put their machines on the market. This combined with 30 years of experience between them, no additional distractions and the fact that they shared their facilities with an organisation providing metalwork fabrication facilities, meant that they could set up their business and products, so quickly.
Upon considering the evidence the High Court dismissed MPT’s application for an interim injunction on the basis that MPT’s case was mostly built on inference. The judge did however grant a limited injunction up to the point of trial to prevent Peel and Birtwistle from retaining, copying, using and manufacturing machines in accordance with MPT’s confidential information and similarly they were prevented from divulging such information to third parties.
Interestingly, in respect of the ‘duty to answer questions truthfully’, the judge held that whilst there was a general duty to answer questions truthfully he was “reluctant to hold” that an employee parting ways with his employer is under a contractual obligation to explain his own confidential plans to set up in lawful competition.
Although the Court was not required to consider this, it may be that a different decision would have been reached if the employees were sufficiently senior and therefore owed fiduciary duties to the employer.
As this is a High Court decision it is not binding, however employers would be well advised to review their contracts of employment to ensure that any confidentiality clauses and restrictive covenants contained therein are likely to be deemed binding on their employees.
Please contact Katharine Kelly on 0151 239 1079 or firstname.lastname@example.org for advice about confidentiality and post-termination restrictions.