Singapore: Restraint of Trade Provisions

It is common for employers to include restraint of trade provisions in employment contracts. However, such provisions are generally unenforceable unless it can be shown that there is a legitimate proprietary interest to protect and the restraint goes no further than is reasonably necessary to protect that interest. In Powerdrive Pte Ltd (“Powerdrive”) v Loh Kin Yong Philip and others [2018] SGHC 224, Powerdrive sought to enforce a restraint of trade provision against five of its former employees who had joined a competitor. The Singapore High Court held that that the restraint of trade provision relied upon by Powerdrive was too wide and therefore unenforceable.

 

Background

Powerdrive, a company in the business of training military armour vehicle drivers, brought a claim against five of its former employees for breach of contract arising from their employment with a competitor, Singapore Technologies Kinetics Ltd (“ST Kinetics”). The employment was alleged to be in breach of a restraint of trade (“ROT”) provision.

Four of the former employees were employed by Powerdrive as ‘trainers’ to train armoured vehicle drivers while the fifth employee was employed as a ‘junior consultant’.

 

The restraint of trade provision (“ROT”)

The ROT Powerdrive sought to enforce provided:

“5. Confidentiality

You shall not, during the continuance of this Agreement or after its termination, disclose, divulge, impart or reveal to any person or company any of the Company’s clients’ information or confidential reports, processes, dealings or any information concerning the business, finance, transactions or affairs of the Company which may come to your knowledge during your employment hereunder and shall not use or attempt to use any such information in any manner which may injure or cause loss directly or indirectly to the Company or its business or may likely to do so.

Not withstanding [sic] the above, you cannot work for a rival company and/or direct competitor for two (2) years from your termination. Management reserves the right to pursue on legal grounds if there is a breach of this condition.”

 

The court’s findings

The Court found that the ROT was unreasonably wide in terms of:

  1. the scope of employees it sought to restrain;
  2. the scope of work it sought to restrain the former employees from doing when employed by a competitor; and
  3. the duration of the prohibition.

In relation to the scope of employees that the ROT sought to restraint, the Court held that using the ROT Clause against its employees regardless of their seniority, nature of work or level of access to information suggested that the true purpose of the provision was to restrain competition rather than to protect a legitimate interest.

With regard to the scope of work, as the ROT clause prohibited the employees from working for a competitor regardless of the scope of work with the new employer, and not confined to working for a competitor in the same or similar capacity as that in which the employee was working when employed by Powerdrive, the Court was of the view that the ROT was too wide.

The two year duration was also held to be too wide. No explanation was provided by Powerdrive as to why a two year ROT provision was required, neither was any distinction applied to different employees. The Court therefore found the two year duration to have been arbitrarily selected.

Key Takeaways

When drafting restraint of trade provisions, it is important for employers to consider the scope of the restraints. Restraints of trade are generally unenforceable unless it can be shown that (a) there is a legitimate proprietary interest to protect and (b) the restraint goes no further than is reasonably necessary to protect that interest. Any restraints should be appropriate to the level of the employee and careful consideration should be given to the geographic limitations, the duration of the restraint and the activities restrained.


Disclaimer

Herbert Smith Freehills LLP is licensed to operate as a foreign law practice in Singapore. Where advice on Singapore law is required, we will refer the matter to and work with licensed Singapore law practices where necessary.

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Filed under Jurisdiction: Asia, Terms of employment contracts

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