Contributors
In MPT Group Ltd v Peel and others [2017] EWHC 1222 (Ch), the High Court had to decide whether two employees were under a duty to disclose their intention to compete to their employer.
Facts
MPT Group Ltd (MPT) is a leading producer and supplier of mattress machinery, equipment and parts to the mattress manufacturing industry. Mr Peel and Mr Birtwistle were employed by MPT as managers. Both men resigned on 4 August 2016 and their employment ended on 1 September 2016. When asked about their future plans, Mr Peel stated that he was leaving because he wanted to work from home and spend more time with his child by being a freelance CAD designer; Mr Birtwistle said that he had been offered a position doing panel wiring. They denied that they were intending to go into partnership together.
Before leaving MPT, they copied a significant amount of the company's data including databases of customers and suppliers, machinery drawings, manuals, component lists, price lists and discounts, sales quotations, and orders. The two men were subject to comprehensive confidentiality provisions in their contracts of employment, as well as restrictive covenants that prevented them soliciting or dealing with customers with whom they had personally dealt for six months. A few days after that period expired, they incorporated MattressTek Ltd in competition with MPT. Six months after leaving MPT, they started selling three complex mattress machines.
MPT alleged that Mr Peel and Mr Birtwistle were in breach of their restrictive covenants, they had misused its drawings and confidential information and they had failed to answer questions truthfully as to their future intentions. MPT sought the following orders:
- An interim injunction prohibiting Mr Peel, Mr Birtwistle and MattressTek from soliciting, dealing or contracting with MPT's customers and suppliers; and
- An unlimited injunction prohibiting them from disclosing or using MPT's confidential information.
MPT stated that it took approximately 18 months to develop one machine from concept to the point of sale; it alleged that Mr Peel and Birtwistle could not have brought three machines to market so quickly without using MPT's designs and confidential information. In response, Mr Peel and Mr Birtwistle stated that they had been working 12 hours a day for six or seven days a week to achieve what they had done; they had 30 years' experience of mattress machines between them; they were free of the distractions of running a business; and they shared facilities with a company that provided a metalwork fabrication facility.
High Court decision
The High Court dismissed the application for an interim injunction. Although there was a serious issue to be tried, the case was largely built on inference and did not establish that MPT was likely to establish sufficient misuse of its data to justify an injunction.
The judge granted a limited injunction until trial to prevent the two men from retaining, copying, using, manufacturing machines in accordance with and divulging to any third party MPT's technical drawings, customer lists, supplier lists and bill of materials database.
The main point of interest in the judgment relates to whether the employees were under a duty to disclose their intention to compete with MPT. The High Court judge was not satisfied that they were under a duty to disclose their true intentions to MPT. He was reluctant to hold that the duty of fidelity put a departing employee under a contractual obligation to explain his own confidential and embryonic plans to set up in lawful competition against his employer, if asked the question.
Comment
This is a High Court decision so is not binding. The question as to whether an employee has to disclose his intentions post-termination to his employer is an interesting one. The Court might have reached a different conclusion if the employees had been more senior and had therefore owed fiduciary duties to MPT.
The decision is a reminder to employers to ensure their contracts of employment contain enforceable restrictive covenants and confidentiality clauses. It is also a warning that employees may not always tell the truth when asked about their future plans, and employers are right to be suspicious when two or more employees resign at the same time.
