The Court of Appeal ruled that a Chief Executive Office (CEO) ordered to resign in 2005 will not get his compensation of $1 million after he breached a termination agreement which contained a prohibition against him luring staff away from the firm or providing advice to a rival firm.

It all started in 2005 while the CEO was serving his “garden leave” when his employer discovered that the CEO had encouraged two staff members to leave and work at a rival firm. The employer refused the payout and the legal suit followed.

In the first round of hearing, the High Court held that a clause in the agreement that prohibiting soliciting of employees was considered to be an unreasonable restraint of trade and therefore invalid.

The Court of Appeal disagreed and now ruled that an employer is entitled to protect his interest through a non-solicitation clause provided the scope of such a clause is reasonable.

The significance of the decision lies in the court's willingness to recognise as valid, and not restraint of trade, a clause in a termination agreement that prevents people from being poached, provided the clause is reasonable in scope.

For more details, please read report in the Straits Times of 4 Dec.