Know your obligations to your former employer

IN May this year, the Singapore High Court found a former top agency manager of an insurance firm liable for breach of contract in soliciting the exodus of over 200 agents for a competitor while he was still with the company.

The court opined that the former manager had to abide by a non-solicitation obligation when he was working with the company. However, the obligation was absent in the agency agreement he had signed when he started working for the firm. Therefore, he was not subject to any non-solicitation obligation after he left.

Due to how his agency agreement with the former company was drafted, that company was only able to prove the breach of an express contractual obligation in that he had failed to “conduct his insurance business with integrity and honesty”.

As such, even though the court found that he was not bound by any non-solicitation clause, it opined that had the clause been in the agency agreement, it would have been reasonable and enforceable against him.

A non-solicitation agreement or clause is an agreement between an employer and employee whereby the employee agrees not to solicit any of the employer’s business customers or colleagues after the employee leaves to join a competitor or be a competitor of the employer.

The court’s finding serves as a reminder to employers that non-solicitation clauses should be validly incorporated to protect their business interests.

The essential takeaway is that an express and properly worded non-solicitation clause needs to be validly incorporated in any employment contract to be binding on employees. Otherwise, it would be difficult for an employer to seek recourse for the wrongful conduct of a former employee in soliciting his former customers or colleagues.

The position is quite similar in Malaysia. Although post-termination non-compete clauses are clearly void and unenforceable here, a non-solicitation clause may be upheld.

A non-solicitation clause in an employment contract is binding on the employee during and post-employment. A reasonable post-employment period should be set to make the non-solicitation clause enforceable post-employment.

Most importantly, a non-solicitation clause may be rendered ineffective if they are not clearly worded or properly incorporated.

Employers would have legitimate reasons for employees to sign a non-solicitation agreement to protect trade secrets, client lists and employee-poaching during the term of employment and a reasonable post-employment period.

An employee’s duty for non-solicitation of customers and employees is often intertwined with the duty of confidentiality.

Trade secrets are not only limited to manufacturing processes or secret formulae. In Malaysia, customers’ names, lists and details have been judicially recognised as being confidential in nature and they can be trade secrets. Wrongful use of such particulars warrants injunctive protection from the court.

Gone are the days when employees stayed loyal to one employer until they retired. Hence, employers should also include a clause in the employment contract for the duty of good faith or fidelity of an employee.

The duty of good faith or fidelity does not only require that the employee refrains from misuse of or from disclosing confidential information while still employed by the firm.

There is also an implied duty that prohibits an employee from using, without the employer’s consent, any confidential information obtained during his employment for his own or someone else’s use after the employment contract ends.

LEONARD YEOH and PUA JUN WEN

Lawyers, Kuala Lumpur