Intention To Compete

Restrictive covenants and post-termination restrictions aren’t an issue we cover too often but this is our second case this month. The first concerned the geographic and temporal markets limits of the covenant and this case concerns non-compete clauses and the obligation to tell the truth.

In this case, two senior employees handed in their notice and resigned from MPT. When asked by MPT they said they had no intention to work for, or set up, a rival company. However, the expiry of their 6 month covenants they set up a company that directly competed with MPT. MPT sought an injunction because the former employees had misused confidential information from their time at MPT and breached a duty of good faith when asked about their intentions.

However, the High Court took a different view. They held that because the employees had waited until the expiry of their covenants then the rival business was in lawful competition. It added that no such duty to tell the truth existed and an employer could not expect departing employees to divulge any potential, hypothetical or confidential plans.

This is an interesting decision, however, it may not apply if the departing employees were also directors of MPT because they would be under a fiduciary duty to put the business interests of MPT first.