Landmark case paves the way for employers

HR professionals are advised to make sure any non-compete clauses are specific about the business interest they are trying to protect after a recent case set a new precedent.

Landmark case paves the way for employers
Singapore employers need to point out at least one specific legitimate interest that they are trying to protect when drafting non-compete clauses, a partner in a law firm says.

In his analysis released yesterday, Allen & Gledhill LLP partner Tay Yong Seng looked at the effects of the recent landmark Singapore case Phua Woon Mahina v GFI Group Pte Ltd on the employment law landscape.

On 5 February this year, the Singapore High Court – presided by Justice Woo Bih Li – upheld a non-compete clause on the basis that it was no wider than reasonably necessary for the protection of the business’s interests.

“This case is significant because it was the first case in Singapore specifically dealing with a non-compete clause in the interdealer brokerage industry,” Tay said.

The implications of the decision included the fact employers should ensure the scope of non-compete clauses is no wider than necessary in the context of the specific industry, he said.

“If the restrictions imposed are wide, the employer would need to have strong and clear grounds to justify them. 

“For instance, if the non-compete clause imposes restrictions worldwide; it will need to show that it has a significant international business presence to justify such a global restriction.”

In the case, the plaintiff was a senior broker with the defendant GFI Singapore, whose employment contract with the company included a non-compete clause which prohibited her from working for a competitor and from soliciting any of GFI Singapore’s clients for a period of six months after the termination of her employment.

The clause contained no geographical limitation.

Before the expiry of the six-month restriction period, the plaintiff wanted to join one of GFI Singapore’s biggest competitors – Tullett Prebon Singapore – and she commenced action in the Singapore High Court to declare the clause void for restraint of trade.

GFI Singapore argued that the clause was reasonable as it was essential to to safeguard its legitimate interests in trade connections, workforce stability and confidential information.

“On trade connections and workforce stability, GFI Singapore argued that owing to the strength of the personal relationships between a broker and his clients, there was a real risk that his clients will follow him when a broker leaves his employer,” Tay said.

In addition, a broker’s departure may have a destabilising effect on the employer’s existing workforce, as the leaving broker’s colleagues may be tempted to leave to follow him, he said.

“On confidential information, GFI Singapore argued that the non-compete clause was necessary to protect its confidential brokerage rates and other sensitive information from its competitors. 

“Even if the broker undertook not to divulge the information, such an undertaking was difficult to enforce and the risk of wrongful divulging remained.”

The non-compete clause did not contain a geographical limitation, which therefore made it applicable worldwide.

This made its scope potentially unreasonable, Tay said.

“Nevertheless, modern telecommunications technology makes it possible for a broker to compete with his or her ex-employer not just locally, but from abroad as well. GFI Singapore thus argued that a worldwide Non-Compete Clause was not unreasonably wide to protect its interests.”

Taking into account GFI Singapore’s submissions, the court upheld the clause and dismissed the plaintiff’s application with costs.

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