When Mr Peel and Mr Birtwistle both handed in their resignations on 4 August 2016 their employer, MPT Group Limited, clearly smelt a rat. At the time, the company was the only one in the UK who manufactured mattress machinery. Both men were interviewed as to their future intentions and lied, stating that they had no intention of setting up in business on their own account.
Both men were under restrictive covenants preventing them from soliciting or dealing with customers they had previously personally dealt with for a period of six months. However, as soon as that period elapsed, they set up a new business, MattressTek Limited, in direct competition with their ex employer.
MPT sought an interim injunction preventing the defendants from soliciting, dealing or contracting with any of their customers or suppliers until 30 April 2018 and an unlimited injunction preventing them from disclosing or using MPT's confidential information. The company did not believe that Mr Peel and Mr Birtwistle could have legitimately reached the stage of marketing machines for sale by March 2017 without having breached their restrictive covenants and using their designs and other confidential information. They also alleged that the pair's failure to answer questions truthfully about their future intentions was a breach of the duty of good faith.
At an interim court hearing Mr Peel and Mr Birtwistle admitted they had taken information from MPT after their employment terminated but stated that they had not used this extensively and had subsequently destroyed the hard drives.
The High Court held that Mr Peel and Mr Birtwistle owed a duty of fidelity to their employer and that they had been dishonest when questioned by the company about their intentions. However, the Court was reluctant to hold that the contractual obligation to act in good faith extended to a duty to disclose confidential plans to set up in competition, even when asked about it directly. The Courts can only interfere with an employee's freedom in so far as to prevent unfair competition, to hold employees to enforceable restrictive covenants and to protect confidential information. A limited injunction was however granted until trial relating to the use of MPT's technical drawings, customer lists, supplier lists and bill of materials database, and from manufacturing any machines using this information.
This was only an interim judgement, with a full hearing to take place at a future date. However, it is a reminder to businesses of the importance of having well drafted and enforceable restrictive covenants and confidentiality clauses. It is also worth noting that had Messrs Peel and Birtwistle been directors of MPT then the Court may well have taken a stricter view of their obligations to MPT given the fiduciary duties they would have owed, including the duty to act in the best interests of the business.