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June 30, 2017

Departing Employees: No Need to Disclose an Intention to Compete

In the case of MPT Group Limited v Peel [2017] EWHC 1222 (Ch), the High Court examined whether departing employees were required to disclose their intention to compete after the expiry of their restrictive covenants.

The two defendants were employed by MPT Group Limited (MPT), under employment contracts which contained restrictive covenants preventing them from soliciting or dealing with customers they had personally dealt with for a period of six months. They resigned in August 2016 and, on being questioned by MPT, stated that they had no intention of going into business together or competing with MPT. After the six-month period dictated by the restrictive covenants had passed, they set up a company in direct competition with MPT. MPT sought an injunction to prohibit the defendants from soliciting and dealing with MPT’s named customers until April 2018 and from using or disclosing confidential information.

The High Court was not satisfied that the defendants were under a duty to disclose their true future intentions. It also found that the defendants had not breached their duty of good faith by failing to disclose their future intentions to MPT. The Court stated that the law would step in to prevent unfair competition through enforcement of restrictive covenants and protection of confidential information, but that employees are “free to make their own way in the world”.

This case will be disappointing for employers and highlights the importance of having well drafted covenants so that they are protected to the fullest extent possible. It should also be noted that the Court might well have reached a different conclusion in a case involving employees of sufficient seniority to owe fiduciary duties (which the defendants in this case did not).

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