Case law: Employers should not necessarily rely on leavers to tell the truth about plans to set up in competition

Employers whose employees resign should be wary of relying on answers to questions about their lawful future plans as, dependent on their seniority, they may not be under an obligation to tell the truth, according to a recent ruling.

Two relatively senior employees resigned with the intention of setting up a competing company once non-compete clauses in their terms of employment had expired. Their employer asked them specifically whether they intended to set up a competing company but they lied about their plans.

When it was discovered they had lied, the employer went to court for an injunction to stop them misusing its confidential information. It also claimed they had breached an employee's duty of fidelity - which included a duty to answer questions truthfully.

The court ruled that there was a general duty on employees to answer questions truthfully, but refused to find that a departing employee is contractually obliged to reveal their lawful plans to set up in competition. It said:

"I am far from satisfied that these employees were under a duty to disclose their true intentions … The law will step in to prevent unfair competition or to hold employees to enforceable restrictive covenants or to protect confidential information. Equally, employees must not induce others to breach their own contracts of employment, conspire to cause their employer injury or, in most cases, solicit their colleagues for their new enterprise. Subject to these matters, employees are otherwise free to make their own way in the world. I should therefore be reluctant to hold that an incident of the duty of fidelity is that, when asked a straight question a departing employee is under a contractual obligation to explain his own confidential and nascent plans to set up in lawful competition."

The result may have been different if the employees had been directors, or otherwise very senior, so that they owed the company more extensive, fiduciary duties.

Operative date

  • Now

Recommendation

  • Employers whose employees resign should beware relying on answers to questions about their future plans as the employees may, dependent on their seniority, not be under an obligation to tell the truth

Case ref: MPT Group Ltd v Peel & Ors [2017] EWHC 1222

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