Employee breaches fiduciary duties with competing business

A Singapore employer has successfully claimed against a former employee for breaches of fiduciary duties.

In a recent case before Singapore’s High Court, Antonius Martinus Mattheus Schonk – a former employee of Enholco Pte Ltd for 23 years – was held to have acted in conflict of interest and in breach of his fiduciary duties when he incorporated a competing company while employed by Enholco, with the aim of luring business away.

In Singapore, the implied duty of good faith and fidelity prohibits an employee from competing against the employer during the course of employment.

Enholco eventually discovered the conduct and dismissed Schonk, and commenced an action seeking damages for the losses due to breaches of duties, as well as a claim for loss of profits.

The court held that Schonk was an employee of Enholco at all times, who had set up the competing company with the intention to both avoid paying money to the owner for shares in Enholco, as well as to lure away Enholco’s business and customers.

Enholco was awarded a mere $313,454 in damages, comparative to the $1.67m sought for losses suffered by reason of Schonk’s breaches, and between $2.8m and $4.2 for loss of profits.

The reasoning behind this was because there was evidence suggesting some clients were only willing to contract with Schonk , and would have followed him regardless, and because Enholco had already elected common law damages, and could not claim both.

In a report issued last week, Singapore law firm Baker & McKenzie. Wong & Leow analysed the employment relationship in light of the Enholco case.

“It is fairly well established that an employment relationship gives rise to reciprocal rights and obligations even if such terms are not expressly included in the employment agreement,” the report said.

“This would include, for example, the implied term of mutual trust and confidence, pursuant to which both the employer and the employee are obliged not to behave in a way that would undermine the employment relationship.”

Senior employees may also owe fiduciary duties which carry a higher standard of care in equity and law, including, but not limited to, the duty to act bone fide and in good faith in the discharge of duties, the duty to act for the proper purpose of the employer, and the duty not to use a fiduciary position to obtain unauthorised profits, the report said.