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Enforceability of restrictive covenants

Chia Foon YeowWu Yanjuan

In Smile Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart [2011] SGHC 266, the Singapore High Court considered restrictive covenants in an employment contract. In this case, the plaintiff had employed the defendant as an associate dentist. After resigning, the defendant ran a competing business which was within five minutes' walk of the plaintiff's clinic. The plaintiff's business suffered and eventually the plaintiff closed its clinic as many of its patients became patients at the defendant's clinic. Subsequently, the plaintiff brought an action to sue for, among other things, breach of various restrictive covenants contained in the defendant's employment contract with the plaintiff.

The contract contained restrictive covenants which prescribed, among other things, that:

  • the defendant shall not practice within a 3 kilometre radius distance from the plaintiff's practices (the Practice) that have been set up before and during his cessation of work (the radial clause);
  • the defendant will not seek to damage or injure the plaintiff's reputation or to canvass, solicit or procure any of the Practice's patients for himself or any other persons (the non-solicitation clause); and
  • existing and new corporate and non-corporate contracts, as well as existing and new patients, shall remain with the Practice. Patient data and records, office data and records and computer software programmes and data shall remain the property of the Practice, and such records, in full or in part, shall not be copied manually, electronically or otherwise be removed from the Practice (the non-dealing clause).

The court found that the defendant had breached the radial clause and the non-dealing clause. In relation to the non-solicitation clause, the court drew a distinction between solicitation and mere dealing, and held that the mere fact that the defendant was treating patients who had previously been patients of the plaintiff was insufficient to establish that he had sought to canvass, solicit or procure them to be his patients.

The court went on to examine whether the restrictive covenants were void as being contrary to the public policy against the restraint of trade and based on the circumstances of the case, concluded that the plaintiff had a legitimate proprietary interest to protect; the radial clause was too wide as it was not limited to the clinic that the defendant had worked at while under the plaintiff's employment; and the restrictive covenants were void for being unreasonable restraints of trade as they were unlimited in time.

More importantly, the court held that the discretionary severance approach should not be applied in the employment context to save the restrictive covenants.

The case is a timely reminder that employers will need to ensure that the breadth of restrictive covenants imposed on their employees are not more than is necessary to protect the employers' legitimate proprietary interest in order for the clauses to be upheld and not struck down as being unreasonable restraints of trade.

Chia Foon Yeow and Wu Yanjuan

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