31 May, 2012

 

Legal News & Analysis – Asia Pacific – Singapore – Labour & Employment 

 

Restrictive covenant (RC) clauses are common in Singapore employment contracts, with the Singapore courts generally taking a strict approach towards enforcing them. The Singapore High Court in the recent case of Smile Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart [2011] SGHC 266 too dismissed a dental clinic’s (“Smile”) claim to enforce certain RCs against its former employee. However, what is interesting about this case is the Court’s approach in its analysis of the issues. The Court’s approach was:

 

• First – interpret the RCs;

• Second – decide if the employee was in breach of the RCs, without regard to the legality or illegality of the RCs;

• Third – if there was a breach, whether the RC which was breached was void as being contrary to the public policy against covenants in restraint of trade.

 

As to whether a RC was void, the Court laid out the test as follows:

 

“… the test is three-fold and all three limbs have to be satisfied:

 

a. is there a legitimate proprietary interest to be protected?

b. is the restrictive covenant reasonable in reference to the interests of the parties?

c. is the restrictive covenant reasonable in reference to the interests of the public?

(or)….

d) whether the [RC] went further than what is necessary to protect the interests concerned.”

 

The Court was of the view that there is no substantive distinction between the two “reasonableness” tests at (b) and (c) and the test at (d).In this case, the employee’s contract contained 3 post-termination RCs:

 

a) Radial Clause –restricting practising within 3 km from Smile and its affiliate clinics;

b) Non-Solicitation – restricting soliciting or procuring Smile’s patients for himself;

c) Non-Dealing – restricting dealing with Smile’s patients.

 

The employee set up his dental clinic before resigning from his employment a month later. Subsequently, Smile found that 716 of its patients had sought treatment in its former employee’s new clinic. Smile claimed against the employee on the grounds (inter alia) that he had breached the RCs in his employment contract.

 

Smile’s claims failed as the Court held that the covenants were unenforceable on various grounds, including that the covenants had no time limit and that the Radial Clause purported to prevent the employee from competing for new patients in the restricted location.

 

The Court refused to read down the RCs to make them enforceable and said – “If employers want to protect their trade connections or pool of clients… then they would do well to draft a reasonable restraint of trade provision rather than to try and get the maximum protection which their employees will agree to”. (emphasis added)

 

 

For further information, please contact:

 

Susan de Silva, Partner, ATMD Bird & Bird

susan.desilva@twobirds.com

 

Kavitha Rajan, ATMD Bird & Bird

kavitha.rajan@twobirds.com

 

ATMD Bird & Bird Labour & Employment Practice Profile in Singapore 

 

Homegrown Labour & Employment Law Firms in Singapore

 

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