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The duty of fidelity: Can an employee lie to their employer about their plans to set up in lawful competition?

In the case of MPT Group Limited (MPT) v Peel and others (the Defendants) the High Court has found that two employees did not breach the duty of fidelity when they failed to answer truthfully questions about their intentions to set up in lawful competition.

Background

All employees are under a duty of fidelity (also known as good faith). Although the duty dates back to 1895 and is often relied upon by employers, its exact scope is unclear.

The duty of fidelity is made up of a number of other duties established through case law including:

  • The duty not to compete.
  • The duty not to misuse confidential information.
  • The duty to act honestly.

The extent to which an employee is prevented from taking preparatory steps to compete post termination has been the subject of much case law.

Facts

MPT is a leading producer and supplier in the mattress machinery industry. Mr Peel and Mr Birtwistle were employed in the business in senior positions and resigned together on 4 August 2016 to set up in competition with MPT.  Upon questioning by the Managing Director both men gave untruthful accounts as to why they were leaving, Mr Peel said he wished to spend more time with his child and so would be working on a freelance basis and Mr Birtwistle explained that he had been offered a position doing panel wiring.  Both men denied they had any intention of going into partnership together.

MPT subsequently brought a number of claims including misuse of confidential information, failure to answer questions truthfully as to future intentions and infringement of database rights and copyrights.

The High Court

With regard to the contractual claim concerning failure to answer questions truthfully the High Court held it was not satisfied that the Defendants were under a duty to disclose their true intentions to MPT. The law will step in to prevent unfair competition, enforce restrictive covenants and protect confidential information. Equally, employees must not induce others to breach their own contracts, inspire to cause their employer injury or solicit their colleagues for their new enterprise.  Subject to these constraints employees are free to make their own way in the world.  A departing employee is not under a contractual duty, when asked a straight question, to explain his own confidential plans to set up in lawful competition.

In relation to the other causes of action the High Court found that there was a sufficient case to be tried but that springboard relief was not justified.

Comment

This case provides useful guidance for employers on the scope of the duty of fidelity. As with all cases the findings are fact specific and employees should be cautious if planning to set up in competition and should not read the case as an endorsement to lie to their employers.

With regard to competition, employers with strong restrictive covenants and confidentiality provisions are in the strongest possible position.

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Legal news, views, trends and tools for HR Professionals. Stay ahead. Go further