It is well established that all employees must serve their employer with good faith and fidelity regardless of the terms of their written contract. Over the years this duty has been found to extend to preventing employees disrupting or competing with their employer’s business, misusing their employer’s property and requiring them to account for secret profits.
However, the duty expires on termination of employment and there are also limits to how far it extends.
A recent case before the High Court explored whether the duty requires an employee to be honest when questioned about their plans to compete post-termination.
A recent preliminary hearing at the High Court concerning Mr Peel and Mr Birtwistle, two former employees of MPT Group Limited, addressed this issue.
When Mr Peel and Mr Birtwistle announced their intention to leave employment they were questioned about their future plans. The pair did not reveal their intentions to set up a rival company and gave untruthful answers. On the expiration of their 6 month post-termination restrictions, they incorporated MatressTek Limited. This was undeniably a competitor of MPT, who subsequently brought claims alleging a number of contractual breaches, including that their failure to answer honestly about their intentions constituted a breach of the implied duty of fidelity.
The High Court found that the employees did not have an implied duty to disclose their intentions to MPT. The court stated that departing employees are not under an implied contractual duty, when asked a question about the future, to explain confidential plans to set up in lawful competition.
The case is a useful reminder as to why it is important to ensure all employees have well drafted contracts that regulate their activities both during and after employment.
Whilst in this case the contracts did contain post-termination restrictions, these did not extend to a duty on the employees to disclose their future intentions. If an employer wishes to place such obligations on their employees this must be expressly stated in their employment contract.
It is also important to note that, in this case, the employees were not directors and did not owe fiduciary duties to the company – had this been the case, the outcome may have been different.