Under Singapore law, restraints of trade are generally frowned upon on grounds of public policy. However, in the employment context, the Singapore Court of Appeal has held that (i) a restrictive covenant in restraint of trade may potentially be enforceable if it seeks to protect a legitimate proprietary interest of the employer, provided that (ii) the interest that is to be protected by the restrictive covenant in question is not already covered by another restrictive covenant. Recent decisions by the Singapore High Court have suggested, however, that the judicial sentiments towards point (ii) may be changing, and indeed, may already have changed (see ‘Non-compete clauses’).
To date, the legitimate proprietary interests the courts have recognised are trade secrets (and confidential information), trade or business connections, and the maintenance of a stable, trained workforce. The courts will generally uphold such restraints provided they are reasonable in the interests of parties and the public, and go no further than necessary. The courts tend to construe restrictive covenants more strictly in the employment contract context than in other areas (eg, sale of businesses, settlement agreements).
Trade secrets and confidential information
Protection is granted by common law over an employer’s trade secrets or equivalent confidential information even without an express confidentiality provision (ie, as an implied term), provided the trade secrets can be particularised. However, an express confidentiality clause can potentially help to identify the trade secrets or equivalent information that the employees are precluded from using or disclosing during and after employment, and can also aid in enforcement. Care must also be taken to distinguish between trade secrets and confidential information on the one hand, and the skill and knowledge belonging to the ex-employee on the other. A restrictive covenant seeking to protect the former may be enforced, whereas a restrictive covenant preventing an ex-employee from competing through the latter may be considered unreasonable and unenforceable (see ‘Trade and business connections’ and ‘Non-compete clauses’).
Trade and business connections
Where an employee has personal knowledge and influence over an employer’s customers or clients, the employee can be restrained from taking advantage of this after employment. This is usually done through a non-solicitation of customers or clients clause, which must be reasonable, taking into account factors such as duration and the geographical area of restraint. Non-solicitation provisions can potentially extend to non-solicitation of suppliers as well. Periods of restraint of up to a year may potentially be enforced. Although there is no clear prohibition against longer periods, these are less likely to be enforced and may affect the overall enforceability of the clause. Restraints of up to two years may be allowed in more specialised industries, however (see Tan Kok Yong Steve v Itochu Singapore Pte Ltd  SGHC 85 (Steve v Itochu) below), although the longer the restraint, the higher the chance that the court will find it to have been ‘arbitrarily selected’ (see Powerdrive Pte Ltd v Loh Kin Yong Philip and others  SGHC 224 (Powerdrive)). In the absence of an express clause, the courts may possibly be willing to imply a term to protect this proprietary interest, although unlike trade secrets, this has only been suggested (and not confirmed) by the courts. It is likely to be more difficult to enforce non-dealing (as opposed to non-solicitation) clauses, as these may be construed as unreasonable insofar as they do not just enjoin solicitation, but all forms of dealing.
Maintenance of a stable, trained workforce
An employer can protect its workforce by a non-solicitation of employees (also known as non-poaching) clause. Such clauses are again subject to the requirement of reasonableness, taking into account duration and the types of employees covered. The restraint should not be a blanket prohibition on the prospective solicitation of all employees of the ex-employer, but should be referable to the position, training or knowledge of the target employee, and should also be restricted to employees over whom the ex-employee had influence. Again, periods of restraint of up to a year may potentially be enforced (with longer periods again less likely to be enforced, and potentially affecting enforceability of the clause, although, as mentioned, restraints of up to two years may be allowed in more specialised industries). There has been no indication that the Singapore courts will be willing to protect this interest without an express term.
Although the protection of an employer’s workforce is usually enforced by way of a non-poaching clause, the High Court decision in PH Hydraulics & Engineering Pte Ltd v Intrepid Offshore Construction Pte Ltd  4 SLR 36 (PH Hydraulics) suggests that it might be possible to enforce this through non-compete clauses as well (see ‘Non-compete clauses’).
Having regard to the Court of Appeal decisions in Man Financial (S) Pte Ltd v Wong Bark Chuan David  1 SLR(R) 663 (Man Financial) and Stratech Systems Ltd v Nyam Chiu Shin (alias Yan Qiuxin) and others  2 SLR(R) 579 (Stratech), non-compete clauses would appear difficult to uphold and enforce under Singapore law if the three recognised legitimate proprietary interests identified above are already protected by other clauses (unless a yet further legitimate proprietary interest can be shown). In this respect, the Court of Appeal in Man Financial described the decision in Stratech as reaffirming ‘the proposition that where the protection of confidential information or trade secrets is already covered by another clause in the contract, the covenantee will have to demonstrate that the restraint of trade clause in question covers a legitimate proprietary interest over and above the protection of confidential information or trade secrets’. The Court then went further and held that ‘this proposition is, in our view, a general one and would apply equally in the context of other legitimate proprietary interests’ (and not just confidential information or trade secrets).
A growing line of more recent High Court decisions on non-compete clauses, however, appear to indicate an increased willingness to uphold non-compete clauses even where all of the three recognised legitimate proprietary interests were already protected by other clauses.
For example, in the above-mentioned case of PH Hydraulics, the High Court characterised the maintenance of a stable, trained workforce as a legitimate proprietary interest that could be protected by a non-compete clause (as opposed to a non-poaching clause).
Subsequently, in the High Court decision in Centre for Creative Leadership (CCL) Pte Ltd v Byrne Roger Peter and others  2 SLR 193 (CCL), the High Court, in considering whether a non-compete covenant was enforceable to protect confidential information and trade secrets (even though there was a separate clause in that case protecting such information), appositely commented that it did not seem logical that an employer that had both a non-compete covenant and a confidentiality clause had a lower chance of using the non-compete covenant to protect its confidential information than an employer that only had a non-compete covenant. However, the High Court noted that it was bound by the prior Court of Appeal decisions in Man Financial and Stratech. The CCL decision was appealed to the Court of Appeal, but was ultimately settled before the Court of Appeal could hear and rule on the matter.
Thereafter, in the High Court decision in Lek Gwee Noi v Humming Flowers & Gifts Pte Ltd  3 SLR 27 (Humming Flowers), the High Court opined that the legitimate proprietary interest of trade connections could suffice to support both a non-compete and a non-solicitation clause (which would appear to be contrary to what the Court held in Man Financial, and the judge there expressed similar reservations on the position in Man Financial and Stratech). The Court ultimately did not grant the non-compete injunctions sought, however. The Humming Flowers decision was also appealed to the Court of Appeal, but likewise settled before it could be heard.
The High Court’s June 2018 decision in Solomon Alliance Management Pte Ltd v Pang Chee Kuan  SGHC 139 (Solomon Alliance) did not refer to Stratech. In upholding a non-compete clause against an independent contractor operating both during the contract term and for a year thereafter, the Court found a legitimate proprietary interest ‘in ensuring that an independent contractor… [the plaintiff] had hired to market products sold by the plaintiff did not market those same products on behalf of other companies while the contract was still in operation between the parties’ in addition to the plaintiff’s ‘in safeguarding and maintaining [the company’s] trade connections with its product suppliers and in preventing the use of its confidential information’. This decision is a clear recognition by the Singapore courts of a legitimate proprietary interest in the exclusive marketing by an independent contractor of a range or type of products. It could have been the Court’s way of avoiding the application of Stratech for non-compete, but it may also be authority for a new legitimate proprietary interest of exclusive marketing of a product type or range. However, the Solomon Alliance decision concerned an independent contractor rather than an employee, and the courts have previously held that restrictive covenants may be scrutinised less strictly in non-employment contexts.
The High Court’s subsequent decision in Powerdrive essentially bypassed the issue of whether there was a legitimate interest that justified the restraint by holding only that the non-compete restrictive covenant in question was unreasonable and therefore unenforceable (the Court did, however, recognise that Stratech still remained binding).
Finally, in the High Court’s March 2019 decision in World Fuel Services (Singapore) Pte Ltd v Xie Sheng Guo  SGHC 54, a six-month non-compete restrictive covenant was upheld despite the presence of a ‘full suite’ of the other restraints (namely, a covenant not to solicit customers or poach employers, and a clause imposing duties of confidentiality). In doing so, the Court did not make reference to either Stratech or Man Financial. Instead, the Court appeared to find that the balance of convenience leaned in favour of upholding the non-compete restrictive covenant, and took the view that on the facts, ‘[i]t would be impossible to separate confidentiality from a detached discharge of [the employee’s] duties with [the employee’s] new employer’ (which would seem to be at odds with the proposition in Stratech, which required the ex-employee to compete with a new employer as long as he observed the previous employer’s confidentiality).
It is therefore an open question whether the proposition in Stratech should be considered as still representing the Singapore courts’ position on non-compete. It technically remains good law insofar as it is a Court of Appeal decision, and only the Court of Appeal can overrule it, which has not happened as yet. This may only be because no suitable case has gone before the Court of Appeal for determination since then, and it has not therefore had the opportunity to overrule Stratech.
Meanwhile, of importance are the factors that the Court in Powerdrive had looked at in coming to its conclusion. The Court noted that the employer used the non-compete clause against ‘all its employees regardless of their seniority, nature of work or level of access to information’. Following past decisions, the Court further noted that ‘such an indiscriminate application would suggest that the true purpose of the provision was to restrain competition rather than to protect a legitimate interest of an employer’, which would make the non-compete unenforceable. In this regard, the Court also suggested that even if an employer only actually intended to enforce the non-compete against select groups of employees, by making the non-compete applicable to all employees it made the clause unreasonable and therefore unenforceable.
Employers should therefore be careful when drafting non-compete restraints. In addition to stipulating an appropriate scope of work and geographical area, the employer would also need to carefully consider the types of employees to be restrained and, as Powerdrive suggests, would need to be able to provide some explanation and basis as to why the stipulated period of restraint is appropriate (although, generally speaking, shorter periods of restraint would be relatively easier to justify).
That is not to say that long periods of restraint would always be unreasonable and unenforceable, however. In the earlier April 2018 decision of Steve v Itochu, the High Court upheld a non-compete restraint that lasted for two years. This case concerned an employee who was in charge of his employer’s cement products business (which the Court noted was a specialised industry) in various Asian countries, and who had taken approximately four years to build up customer connections on behalf of his employer. As such, it was reasonable that the employer could seek two years to rebuild the same contacts without any interference from the ex-employee.
Injunctive relief may also be granted to prevent a person who has obtained confidential information from using it as a ‘springboard’ for activities detrimental to the person to whom the confidential communication belongs, or to gain an unfair advantage or head start over that person. Although similar in effect to a non-compete injunction based on restrictive covenants, such springboard injunctions originate from cases involving a breach of the duty of confidence, and do not exclusively arise in employer-employee situations. Accordingly, a springboard injunction may even be granted in the absence of any restrictive covenants at all, although the presence of restrictive covenants would at least be relevant.
In the Singapore High Court decision in Jardine Lloyd Thompson Pte Ltd v Howden Insurance Brokers (S) Pte Ltd & Ors  5 SLR 258, the ex-employer sought an injunction against its ex-employees to prevent the ex-employees from joining their new employer, and similarly sought an injunction against the new employer to prevent the new employer from hiring its ex-employees. This was done notwithstanding the absence of any non-compete clauses in the relevant employment agreements of the ex-employees. The basis of the ex-employer’s claim for the injunction rested (among other things) on the argument that its former employees had misused its confidential information and, accordingly, should be prevented (by way of an injunction) from taking unfair advantage of the springboard that would otherwise be created from such misuse. While the Singapore High Court declined to grant the injunction sought on the grounds that there was no evidence of misuse of the confidential information (or risk thereof), the High Court appeared to suggest that in the appropriate case, a springboard injunction could possibly be granted to prevent an employee from disclosing his or her employer’s confidential information (even in the absence of a valid non-compete clause).
Thereafter, in the High Court decision in Goh Seng Heng v RSP Investments and others and another matter  3 SLR 657 (Goh Seng Heng), the High Court granted an interim springboard injunction as it was found that:
- there was misuse of confidential information, or the risk of such misuse;
- such misuse of confidential information had given rise to an unfair competitive advantage to the party sought to be restrained;
- the unfair advantage was still being enjoyed by the party sought to be restrained at the time the injunction was sought; and
- damages would be inadequate.
While there were non-solicitation and non-compete clauses in the relevant employment contracts in Goh Seng Heng and they were considered by the Court, this was ultimately not the Court’s basis for the grant of the springboard injunction. Instead, the High Court found that the four requirements above were satisfied as the ex-employees had (among other things) taken and misused confidential information and trade secrets, in addition to poaching the former company’s doctors, entering into contracts unfavourable to the former company, and inflating the salary of its ex-chief executive officer. The Court found that these actions were intended to, and did, bleed the former company financially, and the breaches of confidentiality gave an unfair competitive advantage towards the ex-employees’ new company. There was a strong likelihood that without a springboard injunction, the former company would be ruined before the matter reached trial, and damages in lieu of an injunction would therefore be insufficient. As such, the springboard injunction was found to be necessary. The ex-employees appealed against the High Court’s decision in this regard, and the appeal was allowed by the Court of Appeal. However, no written grounds of decision were rendered, so it is unclear what view the Court of Appeal took of the High Court’s reasoning on the springboard injunction.
A clause prohibiting the misuse of confidential information for a stipulated period of time may be a relevant consideration for the court in deciding how long the springboard injunction should be in place (if granted at all). In PH Hydraulics, the High Court stated that the springboard doctrine did not apply as the two-year period in the relevant confidentiality clause had expired, and the information was no longer confidential. On the other hand, where a period of time was not expressly stipulated in a confidentiality clause (and the relevant clause did not indicate how long this obligation would last), the Court of Appeal in Tang Siew Choy and others v Certact Pte Ltd  1 SLR(R) 835 took the view that the period of time to restrain the ex-employees from using confidential information would have to be gathered mainly from the complexity of the information protected, with the injunction to continue for the period for which the unfair advantage may reasonably be expected to continue.
Aside from springboard injunctions, another potential way to achieve a similar result to a non-compete clause may be to expressly incentivise employees not to compete (or disincentivise employees from competing) for a specific period of time after employment.
That said, care should be taken by the employer in doing so. In the Court of Appeal’s decision in Mano Vikrant Singh v Cargill TSF Asia Pte Ltd  4 SLR 371 (overturning the High Court decision in that case), the Court held that to financially disincentivise an employee from competing through a contractual clause that deprived the employee of a vested right (in that case, a declared and vested deferred bonus payment) effectively amounted to a restraint of trade, which would therefore have to pass the test of reasonableness in order to be enforceable (the restriction was found to be unreasonable as, among other things, it had no geographical limit). This was notwithstanding the fact that the clause in question did not actually prohibit competition by the ex-employee, as his competition with the company was not in breach of his employment contract per se (and the company accordingly had no recourse to damages or an injunction). In light of this decision, while a financial disincentive to compete may still be a viable alternative means to effectively achieve non-compete, employers should be careful to ensure that the benefits sought to be withheld cannot be construed as having been vested, or otherwise encourage expectations that employees are entitled to such benefits.
The courts may be more willing to uphold restrictive covenants agreed on in sale-of-business agreements, and also settlement (or possibly termination) agreements. This is particularly so where the agreement provides for new and substantial post-employment benefits, which have been freely negotiated between the employer and employee at that point.
As to severance of terms, the Court of Appeal in Smile Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart  1 SLR 847 (Smile Inc) significantly indicated that it was not in favour of the ‘notional’ severance approach in the construction of restrictive covenants (ie, the flexible ‘reading down’ of a clause by modifying, deleting or adding to the clause as appropriate, rather than applying the strict ‘blue pencil’ test, which only allows for severance by actual deletion). This means a restrictive covenant with an unreasonably long period of restraint (eg, three years) may now be struck out in its entirety as unreasonable (because the period in question cannot be reduced by a ‘blue pencil’ deletion to make it apply for a more reasonable period (eg, one year)). The court stated that employers should draft reasonable (and therefore enforceable) restrictive covenants from the outset, instead of drafting unreasonably long periods of restraint in trying to obtain maximum protection, then subsequently relying on the courts to ‘read down’ the provision to make it enforceable. While the Court of Appeal in Smile Inc raised without apparent disapproval the use in other jurisdictions (eg, Australia) of ‘cascading clauses’ (which consist of multiple overlapping periods and areas of restraint, to specifically allow the offending ones to be ‘blue pencilled’ out), the High Court in Humming Flowers has since opined that cascading clauses offend against public policy, among other things, as they increase rather than reduce uncertainty, and should accordingly not be upheld; this may now be taken as the correct view unless and until the Court of Appeal holds otherwise.
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