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Shopee Singapore Private Limited (“Shopee”) had in a recent case concluded before the Singapore High Court sued its ex-employee Mr Lim Teck Yong (“Lim”) in an attempt to enforce the restraint of trade clauses in Lim’s employment contract and sought an interlocutory injunction to stop Lim from working for ByteDance Ptd Ltd (“ByteDance”, best known for its platform – TikTok).
While the case itself centred around the technical legal requirements for obtaining an injunction and how the legal test should be applied to a clause that is generally unenforceable at law (unless proven enforceable), and also how this interacts with the threshold requirement of a “serious question to be tried” – a topic that would undoubtedly be of keen interest to legal practitioners and the subject of many a classroom / courtroom / bar room debate – ultimately, the practical takeaways are pretty straightforward and common-sensical:
Don’t be too greedy
Don’t’ leave it to chance
Be Realistic
There is always the temptation to impose a wider and longer restriction on employees, especially since at the inception of an employment relationship, it is not uncommon for employees to generally accept the terms of the employment contract when it presented to them.
However, as this Shopee case very clearly illustrates, the restriction has to be deemed reasonable in the eyes of the Court for it to be enforceable. In the case itself, the Court seriously doubted the reasonableness of a geographical restraint of a non-competition clause where it extended to markets which the employee Lim did not even have duties in, such as Indonesia, Malaysia, the Philippines, Singapore, Taiwan, Thailand and Vietnam.
The obvious temptation here is always to include a clause that says that the employee is restricted from competing in all the markets that the employer operates in – but this is clearly too wide in geographical scope to be remotely reasonable. This was apparent in the case itself where the former employee Lim was previously working only in Shopee Brazil in the 12 months immediately preceding the cessation of his employment.
The lesson here is straightforward – if one gives into the temptation to simply restrict everything, the result is that nothing would be restricted at all as the clause itself would be rendered void. There really is no point being greedy here.
The problem with restraint of trade clauses is that they are generally unenforceable at law until proven to be reasonable – this invariably involves very technical legal elements that would be examined by any Court.
One of the main issues in the Shopee case was that Shopee struggled to identify a legitimate propriety interest. Now this may sound like a simple term – obviously there must be something an employer wishes to protect that it could name as a legitimate proprietary interest, and surely, confidential information belonging to a Company employer would be both legitimate and proprietary, and deserving of protection.
Rather counter-intuitively, this is not usually the case because most employment contracts have confidentiality clauses expressly preventing employees from misusing and/or disclosing the confidential information they are privy to by virtue of their work.
The reason is this – to be considered reasonable, a restraint of trade clause must only impose a restriction on the former employee to the extent that it is necessary to protect a legitimate proprietary interest. If the legitimate proprietary interest is confidential information, and there is already a confidentiality clause, then the restraint of trade clause is no longer necessary because that is exactly what the confidentiality clause is for.
That is why Shopee could not identify or prove a legitimate proprietary interest for its non-competition restriction beyond confidential information – something that was already sufficiently covered by an entire “Employee Confidentiality Agreement”.
The result is that if one were to understandably include confidentiality clauses and restraint of trade clauses trying to protect confidential information, then there would not be an identifiable legitimate proprietary interest for the restraint of trade clause to protect, ironically because of the confidentiality clause.
This result is always strange to any Company / employer, but this is typical and common legal knowledge to lawyers because the Court of Appeal has already definitively ruled on this years ago in 2008 – it has been settled and uncontroversial law for more than 15 years!
Practically speaking, the takeaway is that to avoid the situation Shopee faced, where it had the uphill task of convincing the Court of the legitimacy and reasonableness of poorly drafted restraint of trade clauses, the better path to take is to ensure the clauses are properly drafted in the first place. Prevention is better than cure, especially when one has to prove to the Courts that one actually deserves the cure in the first place.
The last takeaway point is one that is obvious from simple observation of how many failed attempts at enforcing restraint of trade clauses there are.
When employers insert restraint of trade clauses into their employment contracts, they typically think they can simply enforce it, and if they have enough resources to sue their ex-employees, they will get the outcome they want. This could not be further from the truth where even big industry players like Shopee didn’t even make it past the low threshold of a serious question to be tried with a real prospect of success. All that Shopee needed to show was that its claim was not frivolous or vexatious, and that its prospects of success were not unrealistic (in the sense that one would only be successful in one’s imagination). That is an incredibly low threshold – the Court eventually found that Shopee did not even show that it had “any prospect of success which, in substance and reality, exist” and that “Its prospects are so small that they lack substance and reality”.
That is why employers need to be realistic in what they can actually restrict and achieve out of a restraint of trade clause, and when viewed from that perspective, one is more likely to lower expectations as to the scope and duration of each restriction, and adjust it accordingly. It also similarly applies to the choice of ‘who’ or what class of employee should have these restrictions, with the realisation that imposing a blanket generic restriction on all employees is unlikely to have any prospect of success that has substance and reality.
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© 2022 Titanium Law Chambers. All Rights Reserved.