Singapore High Court upholds non-compete clause in employment contract of former broker: Interesting Read
Published date: 30 Mar 2015
Singapore High Court upholds non-compete clause in employment contract of former broker
Phua Woon Mahina v GFI Group Pte Ltd Originating Summons No. 4 of 2015
On 5 February 2015, the Singapore High Court upheld a non-compete clause in the employment contract between a leading inter-dealer broker, GFI Singapore, and one of its employees.
The court presided by Woo Bih Li J found that the non-compete clause was no wider than reasonably necessary for the protection of GFI Singapore’s legitimate interests.
Background
The plaintiff was a senior broker with the defendant, GFI Singapore. GFI Singapore is the Singapore office of the GFI Group, a global interdealer brokerage firm headquartered in New York.
The plaintiff’s employment contract with GFI Singapore contained 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 “Non-Compete Clause”). The Non-Compete Clause did not contain any geographical limitation.
The plaintiff wished to join Tullett Prebon Singapore, one of GFI Singapore’s main competitors, before the expiry of the six-month restrictive period. She commenced an action in the Singapore High Court to declare the Non-Compete Clause void for restraint of trade.
Defendant’s legitimate interests
GFI Singapore argued that the Non-Compete Clause was reasonable as it was necessary to protect 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. 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. Personal relationships are of special significance in the interdealer brokerage industry.
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.
Worldwide scope
The Non-Compete Clause did not contain a geographical limitation and was thus applicable worldwide. This made its scope potentially unreasonable.
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.
Judgment
Taking into account GFI Singapore’s submissions, the court upheld the Non-Compete Clause and dismissed the plaintiff’s application with costs.
Non-compete clauses in the interdealer brokerage industry have previously been litigated in other common law jurisdictions, including England, Hong Kong and Australia. This case is significant because it was the first case in Singapore specifically dealing with a non-compete clause in the interdealer brokerage industry.
Key take-aways
When drafting non-compete clauses, an employer should be able to point to at least one specific legitimate interest that it is attempting to protect. The scope of the clause should also be no wider than necessary in the context of the specific industry. 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.
Allen & Gledhill Partner Tay Yong Seng represented the successful defendant, GFI Singapore, in this matter.
If you would like to discuss the impact of this case on your business, please contact:
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Reference from http://www.allenandgledhill.com/pages/publications.aspx?list=FSBulletinAreas&pub_id=867&topic=Financial+Services+Bulletin+March+2015
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