Temporal Scope of Restrictive Covenants in Singapore
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Temporal Scope of Restrictive Covenants in Singapore
May 2023
1．Trend of non-competes’ temporal scope
Recent Singapore legal cases have dampened the positive outlook long held by Singapore courts on non-competes that may extend over a year. The Singapore High Court held that a two-year non-compete and a one year non-compete was unenforceable in Powerdrive Pte Ltd v Loh Kin Yong Philip and others [2019] 3 SLR 399 and HT SRL v Wee Shuo Woon [2019] SGHC 96 respectively. Similarly, the Magistrates Court in Melody Parlour Pte Ltd v Tong Yue [2023] SGMC 10 held that the two year non-compete was unreasonable in duration.
Previously, Singapore courts seemed to be more receptive in upholding restrictive covenants that may extend from two to three years. In Heller Factoring (Singapore) Ltd v Ng Tong Yang [1993] SGHC 68 (“Heller Factoring”), the Singapore High Court upheld a two-year non-compete on the basis that the period of restraint should only be long enough for the danger of interference by the ex-employee to wear away. In that case, an ex-employee issued a tacit assertion of entitlement and threat to poach the plaintiffs’ customers. It was clear that he would poach the plaintiffs’ customers by using the information in the plaintiffs’ files and computer software and undercut the plaintiffs’ business. The Singapore High Court reasoned that the true purpose of the restrictive covenant was to prevent the ex-employee from being used by the plaintiffs’ competitors to draw away the plaintiffs’ customers by misusing the information the ex-employee had acquired by reason of his employment with the plaintiff, and this justified the plaintiffs’ imposition of the two-year restriction.
Later legal precedents seemed to follow Heller Factoring precedent: the Singapore High Court in PH Hydraulics & Engineering Pte Ltd v Intrepid Offshore Construction Pte Ltd and another [2012] SGHC 133 (“PH Hydraulics”) upheld a two-year non-compete, and more recently, the Singapore High Court in Tan Kok Yong Steve v Itochu Singapore Pte Ltd [2018] SGHC 85 upheld a two-year non-compete on the basis that was similar to Heller Factoring and PH Hydraulics, which was the industry in question was a highly specialised one.
2．Trend of non-solicitation clauses’ temporal scope
Similarly, Singapore courts have been cautious in enforcing non-solicitation clauses based on, among other things, their temporal scope. In Man Financial (S) Pte Ltd (formerly known as E D & FMan International (S) Pte Ltd) v Wong Bark Chuan David [2007] SGCA 53, the Court of Appeal upheld a seven-month non-solicitation clause, which was less than a year old, while the Singapore High Court in Lek Gwee Noi v Humming Flowers & Gifts Pte Ltd [2014] SGHC 64 held that a two-year non-solicitation clause was unenforceable as its temporal scope was unreasonably long.
3．Conclusion
It seems that the recent Singapore High Court cases have affirmed the courts’ cautiousness in enforcing non-competes and non-solicitation clauses based on their temporal scopes that may extend over a year, let alone for an indefinite period, as was the case in Smile Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart [2012] SGCA 39
However, the issue on whether restrictive covenants are enforceable may ultimately turn on the factual matrix of each case such as the specificity of the industry that the restrictive covenant seeks to protect, and the legitimate interest of the restrictive covenant. As mentioned by District Judge Vince Gui in Melody Parlour Pte Ltd v Tong Yue [2023] SGMC 10, the length of time itself for restrictive covenants is not determinative per se; it must be assessed against the factual backdrop of each case. A two-year restriction may be reasonable in certain cases but unreasonable in others.
We advise that such restrictive covenants generally be drafted to extend to at most three months to ensure that it is enforceable from a temporal perspective for caution’s sake.
