Coordinated resignations can lead to legal consequences, High Court shows
Singapore's High Court recently dealt with a dispute centered on former employees who left a company and allegedly took confidential information with them to competing businesses.
The former workers argued they didn't breach confidentiality obligations because the information lacked the necessary quality of confidence, claiming the company had a lax attitude toward information security.
They further contended that their employment contracts only prohibited joining specific companies listed in an annex, which didn't include the competitors they eventually joined.
The employees also maintained they merely took preparatory steps for future business activities, which didn't constitute actual competitive activity while employed.
The case highlights important questions about employee loyalty, confidentiality obligations, and what constitutes legitimate preparation for future employment versus breaching contractual duties.
The plaintiffs were ATT Systems (S'pore) Pte Ltd (ATT Systems), a systems integration services provider, and ATT Infosoft Pte Ltd (ATT Infosoft), its wholly-owned subsidiary specialising in electronic queue management systems (EQMS) and visitor management systems.
The defendants included Centricore (S) Pte Ltd (Centricore), six former employees who had worked for ATT Systems until their contracts were transferred to ATT Infosoft, and IdGates Pte Ltd (IdGates). These employees held various positions at ATT Infosoft, including deputy chief technology officer, business development director, and department heads.
As early as March 2019, two senior employees planned to leave ATT Infosoft and discussed starting their own business. They signed a tenancy agreement for office space and one employee contributed $7,000 for Centricore's rental deposit and start-up costs.
A series of resignations began in July 2019, with the deputy chief technology officer resigning first, followed by others. While some were serving notice periods, Centricore was incorporated in August 2019, with two departing employees becoming its directors and shareholders.
Forensic analysis revealed company information stored in the deputy chief technology officer's personal Dropbox folder and external storage devices that weren't returned to ATT Infosoft.
The disputed confidential information included pricing information, client contracts, operating manuals including source codes, and client-specific materials. This information wasn't publicly available and was allegedly used or possessed by several defendants without authorisation.
The employees had several contractual obligations: a Loyalty Obligation prohibiting work for other employers during employment; an ISO Obligation requiring compliance with information security policies; a Non-competition Obligation preventing employment with competitors for six months after leaving; and a Confidentiality Obligation.
The legal framework for breach of confidence was explained in the judgment: "The law on breach of confidence was clarified in I-Admin as protecting different interests of the claimant: not just wrongful gain, as encapsulated by Coco v AN Clark (Engineers) Ltd, but also wrongful loss. Where wrongful loss is claimed, this may be based on access or possession or acquisition, without use."
This framework recognises that confidentiality protects against both unauthorised use of information (wrongful gain) and mere access to or possession of confidential information (wrongful loss).
The court found the plaintiffs had properly claimed both wrongful gain and wrongful loss. It determined that confidentiality obligations were owed to both plaintiff companies, rejecting the argument that contractual relationships were needed for such obligations.
The deputy chief technology officer was found liable for undermining both wrongful loss and wrongful gain interests. The court noted his personal Dropbox folder contained "multiple files meticulously organised into various folders with names incorporating 'Centricore'."
For three other employees, the court found they had infringed the wrongful loss interest through unauthorised access to confidential information but didn't find proof of actual use. The court explained: "Their conscience was presumed to have been affected; they were unable to bring anything into court to support their position that the Confidential Information was no longer in their possession."
None of the defendants could adequately prove they had deleted the confidential information. The court also found evidence that the deputy chief technology officer had used confidential information to prepare proposals for a competing business.
The court rejected the defendants' narrow reading of the Non-competition Obligation. Although the contract included an annex listing specific competitors, the court found the general obligation applied more broadly: "The text obliged the employee not to be employed or engaged by anyone else carrying on business of a similar nature, or which was in competition with the employer."
All six former employees breached the Non-competition Obligation by engaging with either Centricore or IdGates within six months of leaving ATT Infosoft. Four employees also breached the Loyalty Obligation through activities including working for competitors and contributing money to a competing business while still employed.
The court also found three employees in breach of the ISO Obligation, rejecting claims of waiver or estoppel. Four employees breached their Confidentiality Obligation by failing to return or delete confidential information after leaving employment.
The deputy chief technology officer was found liable for inducing others to breach their contracts. The court inferred this from "the resignations in quick succession and in a coordinated manner" and the fact that he "was the supervisor of the various defendants, and whom the rest appeared to have deferred to."
The court found evidence of conspiracy involving unlawful means among most defendants, with evidence pointing to coordination regarding resignations and subsequent involvement with Centricore and IdGates.
However, the court didn't find conspiracy related to all alleged breaches. It rejected claims that employees deliberately left bugs in code or maliciously deleted materials, stating: "Allegations relating to conspiracy concerning the deletion of materials, and other malicious intention or actions such as the use of bad code, were not made out."
The court found conspiracy for breaches of the Non-competition and Loyalty Obligations and for inducement of breach of contract. Regarding confidential information, it only found conspiracy between the deputy chief technology officer and IdGates.
In its conclusion, the court stated: "I was satisfied that the plaintiffs made out their case on most, but not all, of the claims against the defendants." The plaintiffs could pursue damages including "increased labour and software costs, as well as the liquidated damages imposed" in the next phase of proceedings.
The court dismissed counterclaims brought by three former employees for alleged breaches of their employment contracts, finding these claims "not made out given my findings above that these defendants were in breach of their various contractual obligations."
