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 a restrictive covenant in restraint of trade may potentially be enforceable if it seeks to protect a legitimate proprietary interest, provided that the legitimate proprietary 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 it may be timely for the Singapore Court of Appeal to reconsider this principle (see the discussion under ‘Non-compete clauses’ below).
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 at 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 the discussion under ‘Trade and business connections’ and ‘Non-compete clauses’ below).
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. 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). 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 by non-compete clauses as well (see further discussion below).
On current legal principles, non-compete clauses are difficult to uphold and enforce 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, which has not been successfully done to date in a reported case). The Singapore courts have, however, in recent years displayed an increased willingness to uphold non-compete clauses where not all of the three recognised legitimate proprietary interests are protected by other clauses.
In this respect, a few decisions may indicate winds of change in terms of how courts view non-compete clauses. 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-solicitation of employees clause), allowing an employee to thereby potentially be enjoined from working for a competitor (or to be sued for damages if he or she did so).
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 (S) Ptd 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 (to hold that in a case where a confidentiality clause was already present, as was the case here, there needed to be a legitimate proprietary interest over and above the protection of confidential information and trade secrets for the non-compete covenant to protect). 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. The Court ultimately did not grant the non-compete injunctions sought, however, and in any event, the position that trade connections can support both a non-compete and a non-solicitation clause may be questionable on the present authority of Man Financial. The Humming Flowers decision was also appealed to the Court of Appeal, but likewise settled before it could be heard.
Recently, non-compete injunctions have been given to protect prospective clients and industry contacts where these were not protected by a non-solicitation clause. Whether these would qualify as a new category of legitimate proprietary interests is uncertain, though, and in any event, this was done in unreported High Court decisions that were not appealed to the Court of Appeal.
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 headstart 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, 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 Ld & 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 and they were considered by the court, this was ultimately not the court’s basis for the grant of the ‘springboard’ injunction. In Goh Seng Heng, 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 company’s doctors, entering into contracts unfavourable to the company, and inflating the salary of its ex-chief executive officer. The court found that these actions were intended to and did bleed the company financially, and the breaches of confidentiality gave an unfair competitive advantage towards the ex-employees’ new company. There was a real likelihood that without a ‘springboard’ injunction, the company would be ruined before the matter reached trial, and damages in lieu of an injunction would be therefore 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 was rendered, so it is unclear what view the Court of Appeal took of the High Court’s reasoning above.
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.
It is quite possible that the above cases may signal an impending paradigm shift in the law on non-compete clauses, though the law on this point will only be changed if and when the Court of Appeal rules accordingly in an appropriate case brought on appeal.
A 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. Care should be taken by the employer in doing so, however.
It should be noted though that 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 have to pass the test of reasonableness in order to be enforceable (the restriction was found to be unreasonable there 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-competition, 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, one year) 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 more reasonable). 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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