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Farrer & Co | Can you stop your employees lying?

My friend's four year old has just learnt to lie. In an ironic twist, however, his pride in his newfound skill means he confesses to his misdemeanours gleefully the moment he is pressed. I am sure most employers wish that their employees would be so honest. However, in a recent High Court decision, the court has clarified that employees do not always need to be truthful about their plans to compete.

In the recent case of MPT Group v Peel, two relatively senior employees lied about their intentions to compete with their then employer on the expiry of their restrictive covenants. The High Court found that their untruthful responses did not breach an employee's implied duty of good faith.

The two employees in question planned to set up a new company in competition with MPT, after their restrictive covenants had expired. They were questioned about their intention when handing in their resignation, and both lied about their future plans. Upon discovery, MPT applied for an injunction, arguing that the employees' actions were in breach of their duty of good faith and that the employees had misused the company's confidential information to obtain a springboard advantage in the market.

The judge stated that, whilst the duty of good faith did include the duty to answer questions truthfully, he was "reluctant" to find that the employees were required to disclosure their future intentions to the company when asked. He stated that the courts were there to uphold enforceable restrictive covenants and protect company confidential information, but that otherwise, employees are "free to make their own way in the world".

The effect of this judgment is that, provided employees comply with enforceable restrictive covenants and do not misuse confidential information, they will be free to make plans which conflict with the interest of their then employer without having to disclose those plans. This is not a particularly satisfactory outcome for employers, who will often want to know employees' intentions on leaving and mitigate against any risks that they might pose. With an "employer" hat on, it would therefore be wise to ensure that your contracts of employment include a contractual obligation requiring employees to disclose such conflicts of interest or confess to other wrongdoing. Clearly worded express terms in a contract are much easier to enforce than implied terms, such as the duty of good faith.

Although not discussed in this case, in my opinion it is likely the court would have reached a different view if the employees had been deemed to owe fiduciary duties to their employer. Fiduciary duties are normally owed to employers by employees who are also directors, or who are of such high seniority that they have a duty to act in the best interests of the company. Someone under a fiduciary duty is obliged to report wrongdoing and confess their own misconduct. However, even in these cases, it would be advisable to have an express term to this effect in their contract of employment to reduce any scope for dispute.

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