14 May 2021
The recent Singapore High Court decision in Prudential Assurance Co Singapore (Pte) Ltd v Tan Shou Yi Peter and another [2021] SGHC 109 involving the mass exodus of 244 insurance agents from Prudential to Aviva serves as a timely reminder for HR handling variations to employment contracts.
While changes to employment terms over time are a common occurrence in any employment relationship, these changes must be executed such that they are either properly incorporated into the original employment agreement, or are capable of constituting a binding standalone agreement. The decision also affirmed the established legal test in respect of restrictive covenants and was also one in which the Court used its “blue-pencil”.
Risks of Non-Solicitation Clause not forming part of the employment contract
Prudential had sued its senior agency leader on the basis of a Non-Solicitation Clause contained in an “Agency Instruction” issued 13 years after the agency leader was first hired. The Agency Instruction was a unilaterally-issued document that was not signed or confirmed by the agency leader, who had only signed a Field Manager Agreement and Agency Agreement.
The Agency Agreement and Field Manager Agreement expressly provided that no variations may be made unless in writing and signed by both parties. Prudential’s right of unilateral amendment was only in respect of “rules, regulations and agency instructions”.
On this basis, the High Court held that the Non-Solicitation Clause (as reasonable as it was) could not be considered a binding term of employment.
It is worth noting that the High Court was also not prepared to imply a non-solicitation obligation under the general rubric of mutual trust and confidence.
Prudential managed to succeed overall in its claims on the basis of an express contractual obligations in the Agency Agreement which required the agency leader to conduct the insurance business with honesty and integrity, in good faith, and not to do anything that would harm Prudential’s interests (“Integrity Provisions”). In the absence of the Integrity Provisions, Prudential risked losing the legal remedies available to it to protect the stability of its workforce. The Integrity Provisions were also unlikely to apply post-termination of employment – Prudential could find itself without a remedy if the acts of solicitations had taken place post-termination.
Enforcement of Non-Solicitation Obligations and Application of the Blue Pencil
Notably, the High Court did not consider the Non-Solicitation Clause unreasonable because it restrained solicitation of all employees, officers, agents, Financial Consultants, or managers regardless of seniority or the agency leader’s influence over the individuals – which is traditionally considered a key factor in determining reasonableness, following the views expressed in the decision of Lek Gwee Noi v Humming Flowers & Gifts Pte Ltd [2014] 3 SLR 27. The High Court took the view that the loss of its agents (regardless of seniority) to a competitor will adversely affect Prudential’s business. This underscores, yet again, the point that enforcement of restrictive covenants is often judged against the unique facts of the case.
However, the High Court affirmed the established blue-pencil in the Singapore context: (i) the unenforceable provision must be capable of being removed without adding to or modifying the wording of what remains with the remainder continuing to make grammatical sense, (ii) the remaining contractual terms must continue to be supported by adequate consideration and (iii) the severance must not change the fundamental character of the contract between parties.
What does this mean?
Care should be taken not just in drafting restrictive covenants, but also in ensuring that they are validly incorporated as a term of employment. Variation clauses are an often-overlooked example of boilerplate clauses. Businesses and HR should review their employment contracts and consider the appropriate way forward, balancing practicality and convenience and observance of contractual principles.
Let’s connect!
If you would like to discuss any issues concerning the inclusion and enforceability of clauses in employment agreements to ensure compliance with the laws concerning the above, please do not hesitate to get in touch with any member of the Bird & Bird Singapore Employment team.
For further information, please contact:act:
Seow Hui Goh, Partner, Bird & Bird
susan.desilva@twobirds.com
