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There's a Time and a Place for Those Secrets and Lies

Date: 01/08/2017 | Corporate, Dispute Resolution, Employment & HR

How far does an employee's duty to be truthful with an employer extend?

Defining what qualifies as ‘the truth’ and determining the moral responsibility to uphold it are among the most complex issues we grapple with in the legal world and across wider society. Benjamin Franklin, one of the founding fathers of the USA, sought to bring some clarity to this debate when he said: “it is wise not to seek a secret and honest not to reveal it.”

In a working environment the whole issue of defining truth often comes with many added dimensions and implications, a point recently highlighted in the case of MPT Group v Peel which was recently ruled upon in the English High Court. 

This case, which called into question the extent of an employee’s duty to be truthful to their employer, concerned a Mr Peel and Mr Birtwistle, two managers at Lancashire-based MPT. In early August 2016 both men resigned from the firm, a provider of machinery for the mattress industry, giving their required four weeks’ notice period.  

When interviewed about his future plans, Mr Peel stated he was leaving to become a CAD design freelancer, working from home so he could spend more time with his child. Mr Birtwistle, meanwhile, told his soon-to-be former employer that he was leaving to take up a position he’d been offered doing panel wiring.

When asked, both men specifically denied they were intending to enter into a business partnership. Despite these claims, they were in fact conspiring to set up their own company in direct competition with MPT. They had downloaded, used and divulged to third parties confidential information belonging to MPT, including its database of customers, quotations, suppliers, materials, costings and technical drawings.

When they completed their notice period and left their employment, both men were subject to restrictive covenants that prevented them from soliciting or dealing with customers with whom they had personally dealt for six months. A few days after that period expired, they launched their new business, MattressTek Ltd, selling mattress machines.

MPT responded by taking out an unlimited injunction against the two men to prevent them from utilising any of the confidential information they had obtained during their employment. MPT also argued the men’s failure to give truthful answers about their future plans was a breach of the principles of good faith and fidelity.  

The court, however, took a different view, stating it wasn’t satisfied that Mr Peel and Mr Birtwistle were under any duty to disclose their intentions to management after tendering their notice. The judge said he did not believe the duty of fidelity put a contractual obligation on the men to explain their plans of setting up a business which would operate in lawful competition against their old employer.

A view has emerged in parts of the legal sector since the case that had the individuals in question held more senior positions at MPT, they may have been under a fiduciary duty to be more frank about their future plans.

While this English case could be persuasive here, it is not binding in Scotland. I struggle with any interpretation that the lies told in this case would not put an individual in breach of the contractual duties when the clear intention behind them was to cover up the employees’ plans to set up in competition with their existing employer. 

Had Messrs Peel and Birtwistle taken Benjamin Franklin’s advice and simply refused to reveal their secret, it may not have been a breach of the duty of good faith or fidelity. MPT, it could be argued, were justified in seeking this secret but their employees would have been better served by saying nothing.

It is also important to note that the comments made by the High Court here were in the context of an application for interim injunction - the equivalent of an interdict in Scotland - against the employees to enforce the restraints.   They were accordingly made without the case proceeding to a full trial so there was not a full hearing of all the evidence and arguments.  

My advice to employers in Scotland is to consider their employees as being under a contractual obligation to give truthful responses to questions, even in circumstances such as these. 

This article first appeared in The Scotsman on 31st July 2017

The matter in this publication is based on our current understanding of the law.  The information provides only an overview of the law in force at the date hereof and has been produced for general information purposes only. Professional advice should always be sought before taking any action in reliance of the information. Accordingly, Davidson Chalmers LLP does not take any responsibility for losses incurred by any person through acting or failing to act on the basis of anything contained in this publication.

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