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Misuse of confidential information and identifying the intentions of departing employees

Injunctions are a powerful tool for employers who need to protect their businesses against departing employees, where the departing employee, or team, intends to set up in competition.  An employer may need to seek more than one interim injunction to protect their position before a claim is issued against the departing employee(s) and a date is fixed for the final hearing of any damages claim. 

Springboard Injunctions

Springboard injunctions are a particularly useful tool where the departing employee, or team, has gained an unfair advantage as a result of some form of unlawful conduct carried out during their employment.  Springboard relief is most commonly sought where the departing employee, or team, has misused the employer’s confidential information during their employment; although it can also be sought where the employee has breached other obligations during their employment or breached a post termination restriction (such as a non-compete clause). 

Applying for a springboard injunction is not a straightforward process and the costs of an unsuccessful application can be significant so a careful analysis of the departing employee, or team’s, conduct must be carried out before an application is made.

MPT Group Limited v Peel & Others [2017] EWHC 1222(CH) 

Some of the challenges of applying for an interim injunction and obtaining springboard relief to prevent the misuse of confidential information by former employees were highlighted in the case of MPT Group Limited v Peel & Others [2017].  The case considered the extent to which an employer applying for an injunction must prove unlawful conduct by the departing employee for an application to succeed.  The case also considered the question of whether a departing employee has an obligation to answer questions about their future intentions when they hand in their notice and questions are raised by their employer.

Facts of the case

Mr Peel and Mr Birtwistle were employed by a manufacturing company called MPT in senior positions.  Both employees were subject to restrictive covenants, which prevented them from soliciting or dealing with MPT’s customers, or suppliers, for a 6 month period after the termination of their employment.  Mr Peel and Mr Birtwistle decided to go into partnership together with the intention of setting up a competing business.  They resigned on the same day and their employment terminated on 1 September 2016.  MPT asked Mr Peel and Mr Birtwistle what their future intentions were.  Mr Peel said that he intended to work on a freelance basis and Mr Birtwistle said that he had been offered a new role in a non-competing business.  Neither employee disclosed their true intentions in relation to the partnership or the competing business. 

It subsequently emerged that before leaving MPT’s employment Mr Peel and Mr Birtwistle had copied confidential information belonging to their employer, including mechanical drawings of machinery, customer and supplier lists and information about prices and orders.  A few days after their restrictive covenants expired, Mr Peel and Mr Birtwistle set up a new company and started to market machinery.  The new machinery was very similar to MPT’s machinery.

MPT applied for injunctive relief.  MPT sought an unlimited injunction to prevent Mr Peel and Mr Birtwistle from using, or disclosing, their confidential information (i.e. springboard relief) and an interim injunction to prevent them from soliciting, or dealing with their customers or suppliers.  MPT’s application was only successful in part.

Although the High Court granted MPT an injunction to prevent Mr Peel and Mr Birtwistle from using, or disclosing, certain confidential information that they had taken, the scope of the injunction they were granted was limited.  The Court refused to grant MPT springboard relief.  The Court was not satisfied that MPT had established sufficient misuse of its confidential information to justify an unlimited injunction being granted.  The Court also rejected MPT’s argument that Mr Peel and Mr Birtwistle owed an implied duty to disclose their true intentions to their employer about their plans to go into partnership together and set up in direct competition.

Some employers have expressed surprise at the Court’s decision in this case, particularly in light of the fact that it was not disputed that Mr Peel and Mr Birtwistle had copied confidential information during their employment and used it to their own advantage. 

The decision in this case is a useful reminder of the high evidential burden placed on employers when applying for springboard relief.  Evidence of an unlawful act is not sufficient, in itself, to obtain an order.  The employer must satisfy the Court that the unlawful act has resulted in an unfair advantage, the unfair advantage existed on the date that the application for springboard relief was made and the unfair advantage will result in serious financial loss to the employer if the conduct is allowed to continue.  In MPT’s case the Court was concerned that the complaints against Mr Peel and Mr Birtwistle and their conduct were mainly built on inference and MPT had not demonstrated that there had been sufficient misuse of their confidential information to justify springboard relief.

Practical points for employers to take away from this case

There are a number of practical points that employers can take away from this case:-

  • A high evidential burden is placed on employers when applying for springboard relief. Direct evidence of wrongdoing by the employee is needed to support an application, as well as evidence of there being a real risk of the unlawful conduct resulting in a serious financial loss to the employer if the conduct is allowed to continue. 
  • Departing employees do not have a positive duty to tell their employer about their future plans when they hand in their notice, unless an enforceable contractual duty exists.

How can Druces LLP assist?  

If you are an employer who is concerned about the risks posed by departing employees you may wish to check what information is currently available to your senior employees and check that appropriate restrictions & protections are in place to protect your confidential information. You may also wish to consider updating your contracts of employment to impose a positive contractual duty on senior employees to require them to disclose their future plans when they provide you with notice of termination.

Our Litigation and Dispute Resolution Team regularly advises on injunction applications (including applications for springboard relief); claims for misuse of confidential information and other related claims against departing senior employees (including claims against directors). 

If you have any questions about any of the issues raised in this article, or require advice or assistance in protecting your business, please contact Rachel Brown (Senior Associate) in our Litigation and Dispute Resolution Team by telephone on 020 7216 5562 or by email at r.brown@druces.com.