Singapore: High Court clarifies restraint of trade in employment contracts

On 18 April 2019, the Singapore High Court applied the Court of Appeal test in Man Financial and found that a non-compete clause was unreasonably wide due to its commercial, geographical and durational scope, and was therefore void as an illegal restraint of trade. The judgment is explained below.

HT SRL v Wee Shuo Woon [2019] SGHC 96

Facts of the case

The Claimant (HT) sued a former employee (Woon) for breach of non-compete and non-solicitation clauses of his employment contract by working for a competitor (ReaQta) during the period of restraint.

HT is a security technology company that provides offensive security technology to law enforcement and intelligence agencies. HT software is designed to access data on target devices, including hacking mobile phones or computers. ReaQta provides defensive software that allows users to detect and prevent intrusive threats.

The claim based on the non-solicitation clause was dismissed as ReaQta was not a former customer of HT and so did not fall within the scope of the clause.

Application of the rest in Man Financial

In respect of the non-compete clause, the Court applied the Court of Appeal's test in Man Financial (S) Pte Ltd v Wong Bark Chuan David [2008] 1 SLR(R) 663 that where confidential information or trade secrets are already protected by a different clause in the employment contract, the employer must show that the restraint of trade clause is meant to protect a legitimate proprietary interest over and above the protection of confidential information or trade secrets.

Non-compete clause unreasonably wide

The Court held that the terms of the non-compete clause were unreasonably wide because of four factors:

1. (the restraint prohibited Woon from working with any other business in the cybersecurity or intelligence industry, even if such business dealt solely in defensive (as opposed to offensive) security technology.
2. the restraint prohibited not only employment but also engaging in business with competitors.
3. there was no geographical limitation on the restraint, despite Woon only working in the Asia-Pacific region.
4. the duration of 12 months was excessive, given the lack of geographical constraint.

Key takeaways

Employers must bear in mind that non-compete and non-solicitation clauses are covenants in restraint of trade and such clauses are prima facie void and unenforceable, unless the employer can show that there is a legitimate proprietary interest to protect, and that the restraint is reasonable in the interests of the parties and of the public.

Employers should review their employment contracts carefully, and restraints should take into account the individual circumstances. The commercial, geographical and durational scope of any non-compete or non-solicitation clause should be specifically tailored for each employee, and should be limited as far as is possible.