Beyond the Four Walls of the Employment Contract - Good Faith, Fidelity and Fiduciary Duties

In the area of employment law, a large number of cases brought by employers against their former employees dealt with the express restrictive covenants of the employment contract such as the non-compete, nondealing and non-solicitation clauses. However, the existence of implied terms in employment contracts should not be overlooked. This update examines the law on the breach of implied terms in employment contracts in light of a recent decision by the Singapore High Court.

Smile Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart

In the case of Smile Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart [2011] SGHC 241 ("Smile Inc"), the plaintiff ("Smile") had employed the defendant ("Dr Lui") as an associate dentist. Some years into his employment, Dr Lui incorporated his own company, Dental Essence Pte Ltd ("Dental Essence"). A month after incorporating Dental Essence, he resigned from Smile to commence his own business in a location which is within 5 minutes' walk from Smile's clinic. Thereafter, Smile experienced a decrease in monthly revenue in respect of the branch that Dr Lui worked at prior to his resignation. Many of Smile's patients subsequently requested for their dental records and left to become patients of Dental Essence.

As such, Smile brought an action alleging that Dr Lui had breached the following:

various express provisions of his employment contract which restricted him from undertaking certain activities ("restrictive covenants"); and the duty of good faith and fidelity and fiduciary duties, which are implied terms of the contract ("the implied terms"). Non-enforceability of the Restrictive Covenants

The Court first examined the express provisions of the employment contract which Smile alleged that Dr Lui was in breach of. The restrictive covenants in question were the geographical limitation clause, the nonISSUE 12/02 28 March 2012 solicitation clause and the non-dealing clause. The court found that it was unreasonable to preclude Dr Lui from soliciting patients he had not treated before or deal with Smile's patients when he did not solicit for them. Furthermore, it was significant that all three clauses were unlimited in the duration of restriction. Accordingly, the restrictive covenants were void and unenforceable on the basis that they were unreasonable in reference to the interests of the parties.

As the Court found the restrictive covenants to be unenforceable, the Court went on to deal with the implied duties of good...