In Shopee Singapore Private Limited v Lim Teck Yong [2024] SGHC 29 (Shopee v Lim), the Singapore High Court (HC) heard and dismissed an application by an international ecommerce platform, Shopee, to restrain its former employee of over eight years from accepting employment with a company that launched another ecommerce platform, TikTok Shop, and from soliciting Shopee’s clients and employees.
The decision considered the enforceability of the restraint of trade clauses in the employee’s contract with Shopee and found that Shopee had not shown how there are serious questions to be tried about whether the restriction is valid or breached.
It is trite that restraint of trade clauses, particularly those in the context of employment, are prima facie void and unenforceable. To determine whether a restrictive covenant in restraint of trade is enforceable, the Singapore Courts have consistently applied a two-stage test, namely: (1) whether the restrictive covenant protects a legitimate interest of the employer; and (2) if so, whether the restrictive covenant will be enforceable if it is also reasonable in the interests of the parties and in the public interest.
The case of Shopee v Lim demonstrates the application of this test for employers who seek to enforce restraint of trade clauses against former employees.
The case has also led to an announcement by the minister for manpower that the Ministry of Manpower and tripartite partners will be releasing tripartite guidelines on such clauses in the second half of 2024, which employers should take note of.
The claimant, Shopee Singapore Pte Ltd (Shopee) is in the primary business of running an ecommerce platform in various markets, including Southeast Asia, Taiwan, and Brazil. The defendant, Lim Teck Yong (Lim), was formerly a senior employee of Shopee. Lim started out as “Head of Regional Operations, HQ” on 17 August 2015 and held various positions over the years before he eventually resigned from his position as “Executive Director, Head of Operations for Shopee Brazil” in mid-May 2023. His last day of employment was on 31 August 2023, including a period of unpaid leave of absence between 18 July 2023 to 31 August 2023.
Lim commenced employment with ByteDance Pte Ltd (ByteDance) on 11 September 2023 as the “Leader for TikTok Shop Governance and Experience (GNE), Middle Platform.” TikTok Pte Ltd operates the social media platform TikTok, which launched an ecommerce platform under the label TikTok Shop.
Shopee brought an originating claim against Lim on 24 November 2024 to seek a declaration that the relevant clauses of the restrictive covenants agreement (RCA) and employee confidentiality agreement (ECA) both signed by Lim on 17 August 2015 when he was first employed by Shopee (refer to the Annex section below, which reproduces the Non-Competition Restriction and the Non-Solicitation Restrictions) are valid and enforceable and that Lim has breached them, as well as damages to be assessed.
At the same time, Shopee filed an application for an interim injunction to restrain Lim from accepting employment with ByteDance, and to restrain Lim from soliciting Shopee’s clients and employees, in reliance on several contractual clauses that Lim had agreed to with Shopee. In the alternative, Shopee seeks a springboard injunction to restrain Lim from accepting employment with any of Shopee’s competitors.
The issues for determination before the HC were as follows:
Regarding the first issue, the HC answered in the affirmative and held that the applicability of [33] of RGA Holdings in a particular case is closely interwoven with whether there is a serious question to be tried that the restrictive covenant in question is valid and enforceable. The principles in RGA Holdings are only applicable where an applicant has shown that the respondent is about to breach, or has already breached, a negative covenant.
In the context of a restraint of trade clause, the applicant must first show that the restraint of trade clause is valid and enforceable, in that it protects a legitimate interest of the applicant and in addition is reasonable in the interests of the parties and the public. Where an applicant is unable to show that there is a serious question that the restraint of trade clause is valid and enforceable, it is highly doubtful that the applicant could show that the respondent has breached or is about to breach the negative covenant.
On the second issue, the HC addressed the Non-Competition Restriction and the Non-Solicitation Restrictions separately.
Non-Competition Restriction
Based on Shopee’s case, the legitimate proprietary interest it seeks to protect through the Non-Competition Restriction would be that of protecting confidential information. However, confidential information is already protected by the ECA.
On whether the protection of trade connections and the maintenance of a stable and trained workforce could be the legitimate proprietary interests to be protected, the judge found two difficulties. First, as Shopee's interpretation of “Restricted Territories” in the RCA covers countries for which confidential information relating to the corresponding markets was allegedly available to Lim during his employment, it would follow that the proprietary legitimate interest it seeks to protect is the protection of confidential information and not trade connections or the maintenance a stable workforce. Second, given that trade connections are covered by another clause in the RCA, namely the Client Non-Solicitation Restriction, Shopee would have to demonstrate that the Non-Competition Restriction covers a legitimate proprietary interest over and above the protection of trade connections. This analysis applies equally to any argument that the legitimate proprietary interest covered by the Non-Competition Restriction is the maintenance of a stable, trained workforce, given that such an interest is already covered by the Employee Non-Solicitation Restriction.
Further, the judge observed that the confidential information that Shopee seeks to protect is set out along fairly generic categories, for example: (1) immediate and long-term growth and business plans; (2) seller and listing management, customer satisfaction, pricing and marketing strategies; and (3) detailed statistics on orders, financial metrics, users, and gross merchandise value, that Lim continued to have access to up until July 2023.
Shopee did not plead or point to any specific confidential information, but a general assertion “will obviously not pass muster” and the generality of such information affects the geographical scope of the restraint that Shopee seeks in the Non-Competition Restriction.
Based on Shopee’s argument that the confidential information relates to general knowhow that Lim was exposed to “in regularly held regional operations meetings” where Shopee’s “strategies and priorities for all markets would be shared and discussed,” this would exclude Lim from being employed in all the markets where Shopee was operating, even though these are markets Lim was not even working in or had no responsibilities for, or had no specific information about in the relevant period.
In effect, Lim would simply be restrained from working for any competitor of Shopee who had been in Shopee’s markets. The judge thus expressed “serious doubts” over whether Shopee’s case would be regarded as reasonable as between the parties or reasonable in the interest of the public.
Non-Solicitation Restrictions
Shopee relied on Lim’s refusal to provide undertakings to comply with the Non-Competition Restriction and Lim’s obligations under the ECA in Shopee’s pre-action demand letter to Lim on 6 October 2023 to argue that he has shown a proclivity for breaching these restrictions. The HC found that this was not apparent where, inter alia, Lim had already provided his undertakings by signing the RCA, and the undertakings requested for by Shopee do not add anything legally, given that Lim has already committed to the same obligations in the RCA and ECA.
Moreover, Lim had stated that he did not want to provide the further undertakings in relation to the Non-Competition Restriction, as Shopee has not shown a legitimate proprietary interest, and the trade restraint clause is unreasonable in scope and duration and amounts to an unlawful restraint of trade and was, in the circumstances, not unreasonable in refusing to provide the undertakings.
The HC therefore found that Shopee had not, on its bare assertions alone, shown a serious case to be tried that the Non-Solicitation Restrictions have been or are about to be breached by Lim.
Accordingly, the HC did not agree with Shopee that the restrictive covenants have been or are about to be breached. The prerequisite for applying [33] of RGA Holdings was thus not met.
In relation to the springboard injunction, Shopee had not shown that there is a serious question to be tried of whether there is risk of misuse of confidential information, simply by referring to Lim’s refusal to provide the undertaking (the same factual basis relied on for the Non-Solicitation Restrictions) and where Lim has already signed the ECA. Instead, it was noted that Lim had stated that he has not breached and will not breach his confidentiality obligations.
On the third issue, the HC found that even if there are serious questions to be tried in relation to the Non-Competition Restriction, the interim injunction would not have been granted on the balance of convenience.
In considering the adequacy of damages, the HC commented that Shopee’s difficulty in assessing what damages could adequately compensate it for its losses stems from the generic framing of its potential losses. For example, it does not set out which potential client or area of business it could lose. If Shopee is able to do this, it does not seem that it would be impossible to derive an estimate of the value of the business lost by reason of Lim working for ByteDance during the one-year restraint period.
On the opposite side, the judge found that it may be difficult to quantify the impact on Lim’s career development if he loses the ByteDance job in an industry with only a few big players, for someone of his seniority.
Finally, it was also noted that Shopee’s case is “very weak” and the status quo is that Lim has already started work for ByteDance that would be disturbed if the interim injunction is granted. Given the “serious doubts” over the possibility of Shopee’s eventual success, it would be in the interests of justice not to disturb that status quo.
When preparing employment contracts, care has to be taken if the employers wish to include restraint of trade clauses, to provide for the clauses to be proportionate to the role and job scope of the employee bearing in mind the company’s legitimate proprietary interest to be protected. The geographical area of the restraint, activity restrained, and duration of the restraint are details that must be reasonable both in the interest of the parties and the public. As employees rise through the ranks of the organisation and take on new roles and responsibilities, employers may wish to revisit any restraint of trade clauses in their employment contracts and adjust them accordingly.
In response to a Parliamentary Question on Inclusion of Restraint of Trade Clauses in Labour Contracts for Non-Top Management Positions in April 2023, the minister for manpower shared that the Ministry of Manpower is working with the tripartite partners (namely, the Ministry of Manpower, National Trades Union Congress, and Singapore National Employers Federation) to develop a set of tripartite guidelines to shape norms and provide employers with further guidance on the inclusion of restrictive clauses in employment contracts.
The tripartite partners’ position is that "employers should not have restrictive clauses in their employees’ employment contracts unless there is a genuine need for such clauses to protect legitimate business interests." Following the decision in Shopee v Lim, in February 2024, the minster of manpower shared in Parliament that these guidelines are currently being finalised and are targeted for release in the second half of 2024. Employers should take note of these guidelines once released.
It is unlikely that Singapore will follow the position in the United States where the Federal Trade Commission (FTC) has called for a ban on companies putting noncompete clauses into their employment contracts. The FTC’s proposal requires employers to rescind existing noncompetes and to notify workers that they no longer apply. The proposal would also make it illegal for an employer to enter into a noncompete with a worker or to attempt to do so, or to represent that a worker is bound by a noncompete when that is not the case.
The relevant clause of the RCA on non-solicitation and non-competition states the following:
2. NON-SOLICITATION AND NON-COMPETITION
2.1 The Employee acknowledges that he/she will during the course of his/her employment be privy to confidential and sensitive information and that he/she will make, maintain and develop valuable personal contacts with clients, suppliers, staff and other third parties and further that it would be unfair for him/her, after he/she has left Shopee’s employment, to be free to exploit such knowledge and contacts immediately. He/she therefore covenants with and undertake [sic] to Shopee that he/she will not (save with the prior written consent of Shopee) do any of the following things in the Restricted Territories for a period of 12 months after the Termination Date:
(a) seek or accept employment with or engagement by or otherwise perform services for or engage in business as or be in any way interested in or connected with a Competitor [the “Non-Competition Restriction”];
…
(c) seek, solicit, or endeavour to entice away from Shopee all or part of the account of any business of any Client [the “Client Non-Solicitation Restriction”];
…
(e) solicit or procure the services of or endeavour to entice away from Shopee or employment or assist in or procure the employment by another of any officer, employee or consultant of Shopee where that person is someone with whom he/she has had material dealings or contact during the twelve (12) months immediately preceding the Termination Date (and whether or not such person would commit any breach of his/her contract of employment or engagement by reason of leaving the service of Shopee ) [the “Employee Non-Solicitation Restriction”],
in each case whether directly or indirectly and whether on his/her own behalf or with or for or on behalf of any other person, concern, undertaking, firm or body corporate.
The terms referred to in cl 2.1 of the RCA are defined in cl 1.1 of the RCA as follows:
"Competitor" means any person, concern, undertaking, firm or body corporate which as at the Termination Date is engaged in or carries on within any part of the Restricted Territories any business of a kind carried on by Shopee or any Group Company thereof and with which the Employee has been involved on behalf of Shopee or such Group Company at any time within twelve (12) months immediately preceding the Termination Date.
"Confidential Information" means all information and data (whether recorded or not and, if recorded, in whatever form on whatever media and by whomsoever recorded) relating to all or any part of the business, organisation, operations, dealings, property, assets, technology, activities, services, financial affairs, management and administration of Shopee or any Group Company or treated as confidential to Shopee or any Group Company including, without limitation, trade secrets, technical information, businesses, services, client lists, trade names, trademarks, service marks or other proprietary business designations used or owned by Shopee or any Group Company but shall not include information or material already in the public domain through none of his/her default or omission.
…
"Restricted Territories" means Singapore and such other countries within which Shopee or any Group Company thereof operates at the Termination Date and in relation to such country, during the twelve (12) months immediately preceding the Termination Date, the Employee:
(a) undertook duties for Shopee or any Group Company thereof with respect to the business of Shopee or any Group Company;
(b) had a degree of management responsibility for the business of Shopee or any Group Company or a material part thereof; and/or
(c) was privy to Confidential Information regarding the business of Shopee or any Group Company.
…
"Termination Date" means the date on which the Employee’s employment with Shopee terminates.
Clause 2.3 of the ECA states the following:
The Employee undertakes to at all times, both during his/her employment by Shopee and after his/her termination, (a) hold in the strictest confidence and will not disclose any Proprietary Information except to other Shopee Group employees, agents and representatives who need to know, or to third parties who are bound by written confidentiality agreements to the extent necessary to carry out his/her responsibilities as an employee of Shopee and in a manner consistent with any such third party confidentiality agreements; (b) use Proprietary Information only for the exclusive benefit of Shopee Group as may be necessary in the ordinary course of performing his/her duties as an employee of Shopee; and (c) will cooperate with Shopee and use his/her best efforts to prevent the unauthorised disclosure, use or reproduction of any Proprietary Information.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following:
* A solicitor of Morgan Lewis Stamford LLC, a Singapore law corporation affiliated with Morgan, Lewis & Bockius LLP
[1] That the American Cyanamid test does not apply to an application for an interim prohibitory injunction where the respondent is about to breach, or has already breached, a negative covenant in a contract. The court in such a case does not ask whether there is a serious question to be tried and whether the balance of convenience is in favour of granting such an injunction. Instead, an interim prohibitory injunction will readily be granted to restrain a prospective breach or a further breach. It will only be refused if the respondent shows that he will suffer hardship over and above that which results from having to observe the contract.