Implied duties of good faith, fidelity and fiduciary duties in employment contracts

In our previous article "Beyond the Four Walls of the Employment Contract – Good Faith, fidelity and Fiduciary Duties" published on 28 March 2012, we highlighted the existence of implied terms in employment contracts with reference to the Singapore High Court decision in Smile Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart [2011] SGHC 241

This decision has since been upheld by the Singapore Court of Appeal in Smile Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart [2012] SGCA 39 ("Smile Inc"). In the recently issued judgment, the Court of Appeal has prescribed clearer principles of law on the implied duties of good faith, fidelity and fiduciary duties in the employment context. This update aims to provide an overview of the principles expounded by the Court on the implied duties of good faith, fidelity and fiduciary duties.

The facts and the decision

In Smile Inc, the Appellant, Smile Inc Dental Surgeons Pte Ltd, employed the Respondent, Dr Lui as an associate dentist. While still in the employment of Smile Inc Dental Surgeons Pte Ltd, 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 at which Dr Lui worked prior to his resignation. Many of Smile's patients subsequently requested for their dental records and left to become patients of Dental Essence.

Smile brought an action alleging that Dr Lui had breached both the express restrictive covenants set out in his employment contract as well as his implied duties of good faith and fidelity and fiduciary duties.

The High Court held that the absence of a time limit in the restrictive covenants rendered them void and unenforceable, on the basis that they were unreasonable in reference to the interests of the parties. This was upheld by the Court of Appeal.

The High Court also held that Dr Lui did not owe any fiduciary duties due to the nature of his role.

In addition, Dr Lui did not breach any implied duties of good faith and fidelity by which he was bound, as he merely took preparatory steps in setting up a competing business while he was still being employed. The Court of Appeal subsequently upheld the High Court's findings.

The distinction between the duties of good faith and fiduciary duties

In reviewing the High...