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Employment Law Case Update: MPT v Peel

Aug 24, 2017

It has been an accepted fact that every employee is under an implied duty of good faith towards their employer. However the case of MPT v Peel has tested this idea in the High Court.

The Court had to consider whether employees had to answer honestly when asked by their employer whether they had plans to set up a competing business when leaving the company.

There were two employees who were involved in a number of claims including breach of copyright and misuse of confidential information. The main focus of the case however was the Court’s approach to the implied duty of good faith.

Both employees handed in their notices at the same time and then ended their employment on the 1st September 2016. Their contracts included restrictive covenants which prevented them from soliciting or dealing with customers of MPT Group Limited for 6 months.

Immediately after the expiry of the 6 months the two employees set up a new company together which operated in direct competition with their previous employer.

MPT were seeking an injunction against the two employees. Their case was that the employees had been collecting confidential data and conspiring to set up this business during their notice period. It was decided that the employees did keep some confidential information past their 6 months restrictive covenant period but then destroyed it. MPT were not able to prove that the confidential information had been misused for the purpose of setting up the business in competition.

The judge in this case did grant an injunction which stopped the new company using drawings or plans in the course of its business. However because the employees had set up the company after 6 months from their termination date they were not in breach of their covenants, so MPT claimed breach of contract - breach of the implied duty of good faith.

The judge held in favour of the employees in relation to this point. He did not want to set a precedent for employees to be under a duty to reveal their true intentions to an employer.

Employers should be aware that even though they may directly ask employees if they plan to set up a business in competition, the employee is under no obligation to answer honestly. The employees in this case were not very senior and the position may have been different had it been directors. Employers should ensure their restrictive covenant policies provide sufficient protection and allow a provision for garden leave, especially for more senior employees.

This article is from our weekly Employment Law Newsletter published on 24th August 2017.  If you would like to receive this newsletter directly and be kept up to date with recent cases and Employment Law news, email events@warnergoodman.co.uk.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.