Singapore’s High Court examines whether mass resignations constitute an unlawful conspiracy
Singapore's High Court recently dealt with an employment case involving seven technology workers who left their employer en masse to join competing businesses.
The workers challenged various claims brought against them, including breach of confidence, contract violations, and conspiracy allegations.
The workers' main arguments centred on narrow interpretations of their employment obligations, particularly that non-compete restrictions should only apply to specifically listed competitors and that preparatory activities before joining rival firms shouldn't constitute breaches.
They also contested claims that they had conspired to damage their former employer through coordinated resignations and misuse of confidential information.
The case addresses questions about the scope of employment restrictions, the boundaries of employee loyalty obligations, and the circumstances under which mass resignations might constitute unlawful conspiracy.
Mass departure planning triggers employer investigation
The workers were employed by a technology company specialising in electronic queue management and automated visitor management systems.
The seven workers held key positions, including deputy chief technology officer, business development director, department heads, and software engineers across multiple departments.
Planning for their departure began in March 2019 when two senior workers started discussing establishing their own business.
By May 2019, they had signed a tenancy agreement for office space and begun preparing business cards for all workers who would eventually leave.
This preparation occurred months before any resignations were submitted.
The first resignation triggered a three-month notice period in July 2019, followed by departures over subsequent months.
Workers joined either newly incorporated Centricore or existing firm IdGates, with some being immediately seconded between companies.
The employer learned of competitive activity when a client reported receiving quotations from the former deputy chief technology officer's "new company" in September 2019, prompting a forensic investigation.
Forensic evidence reveals systematic information extraction
The employer's investigation uncovered evidence of confidential information extraction during the departure process.
Forensic analysis revealed that company information had been stored in personal accounts and external devices belonging to multiple workers, including pricing data, client contracts, operating manuals with source codes, technical documents, and client-specific materials.
The investigation found mass deletion activities on company computers in January, August, and September 2019.
One worker used data wiping tools the day before returning his laptop and took steps to hide deletion activity.
Despite deletion attempts, investigators recovered evidence showing confidential information had been transferred to unauthorised storage locations without being returned to the company.
The investigation also revealed that while still employed, one worker had prepared four maintenance proposals under a competitor's name for systems previously installed by the employer at various hospitals.
After departing, the newly formed Centricore successfully undercut the employer's tender bid by approximately $4,000.
The employer argued this demonstrated a competitive advantage potentially gained through insider knowledge.
Employment contract interpretation becomes central issue
The case hinged on interpreting restrictive covenants in the workers' employment agreements.
The non-compete obligation prohibited them from being "employed or engaged by any other person, firm, or company or acquire any interest in any undertaking carrying on business of a similar nature or in competition with the Company" for six months after leaving.
The agreement included an annex listing eight specific competitor companies.
The workers argued this restriction applied only to the specifically named competitors, effectively limiting their obligations to avoid eight identified firms.
They contended that the broader language about "similar nature" businesses should be read as referring exclusively to the annexed entities, allowing them to join any other competing business not specifically listed.
The workers also challenged loyalty obligations that required devotion of "all working time, attention, knowledge and skill" to company interests, arguing that these shouldn't capture preparatory activities undertaken before actually joining competitors.
The interpretation strategy aimed to limit their contractual exposure while preserving competitive freedom.
Employer arguments emphasise commercial purpose
The employer countered with arguments grounded in commercial purpose and business protection.
They maintained that restrictive covenants must be interpreted to achieve their fundamental purpose of preventing competitive harm, regardless of whether specific competitors were pre-identified in contractual annexes.
The employer argued that limiting restrictions to listed competitors would render non-compete clauses ineffective against competitive threats created by departing employees themselves.
The employer argued that allowing workers to engage in extensive competitive preparation while employed would undermine the employment relationship.
They maintained that loyalty obligations must capture activities that compromise an employee's ability to serve their current employer's interests fully, regardless of whether those activities directly involve listed competitors.
The employer highlighted how workers resigned in quick succession, joined related businesses, and immediately began competing for the same contracts using potentially confidential information.
This pattern, they argued, revealed coordination designed to circumvent contractual obligations through joint action rather than individual career choices.
Court establishes broad restrictive covenant interpretation
The High Court rejected the workers' narrow interpretation, finding that restrictive covenants should be read to achieve their commercial purpose rather than being limited by illustrative lists.
The court adopted a "disjunctive interpretation" of the non-compete obligation, finding it created "two categories of prohibited entities" - those of a similar nature and those in direct competition - rather than a single category defined by the annexe.
The court stated that "the commercial purpose of the non-compete obligation must also be to prevent the conduct" where workers establish new competing businesses.
The judges found that limiting the scope to the listed competitors "would reward an ex-employee who surreptitiously or covertly sets up a competing business, giving rise to an absurd result."
Regarding loyalty obligations, the court found they weren't limited to annex companies and did capture preparatory competitive activities.
The court stated "there is no textual basis for importing Annex A into the loyalty obligation" and found it "logical for the loyalty obligation to provide for broader restrictions on current employees' conflicting activities compared to former employees."
Conspiracy findings address departure coordination standards
The High Court found that coordinated resignation patterns, combined with subsequent competitive arrangements, supported inferences of unlawful conspiracy designed to compete with the former employer rather than individual career decisions.
The court stated "the facts gave rise to the inference that there was some degree of coordination and acting in concert among the [workers]" with unlawful means including "breaches of the non-compete and loyalty obligations" and "breach of confidence."
However, the court provided clarification on damages causation that limits employer recovery in certain circumstances.
While upholding most liability findings, the court allowed the workers' appeal regarding three specific heads of loss: increased labor costs, software costs, and liquidated damages.
Applying a "but-for test," the court determined that "regardless of whether there was any breach, the three heads of loss would still have occurred" because they resulted from lawful employment termination rather than contractual breaches.
This distinction shows that while coordinated departures may constitute breaches, employers must demonstrate which specific losses flow from the breaches rather than from legitimate resignation rights.
The workers' appeal was largely unsuccessful, with the court dismissing challenges on most grounds while allowing the specific causation challenge regarding certain claimed losses.
