If you discover that a current employee is secretly running a business that competes with yours, you can usually act, but how depends on what they have actually done. An employee owes a duty of good faith and fidelity throughout employment, and diverting customers, using your confidential information or working on the rival business on company time will usually breach it. Merely preparing to compete later may not. Before dismissing for misconduct, the Employment Act requires a due inquiry. Preserve evidence lawfully, put the allegations to the employee, decide fairly, and then consider recovering your losses.
Is it unlawful for an employee to run a side business?
Not automatically. Many employees run small ventures outside work, and Singapore law does not ban that in itself. The questions are:
- What does the contract say? Many contracts require full-time and exclusive service, or prior written approval for outside work, and require conflicts of interest to be declared. A breach of an express term is the clearest basis for action.
- Does the side business compete or conflict? A weekend bakery run by your accounts executive is different from a sales manager running a rival distributor serving your customers.
- Has the employee used your time, people, information or customers? This is where most cases are decided.
- Is the employee a work pass holder? Foreign employees face separate restrictions. MOM’s position is that work pass holders should work only for their designated employer, and running another business usually needs a different pass. See our guide on whether an EP holder can run a side business.
Where is the line between preparing and competing?
Every employee owes an implied duty of good faith and fidelity while employed, including during the notice period. In Smile Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart [2012] SGCA 39, the Court of Appeal held that steps such as incorporating a company, leasing premises and discussing a future venture with a colleague were preparatory and not, on those facts, a breach. Actively working against the employer’s interests is a different matter.
| What the employee did | Likely position |
|---|---|
| Registered a company or business name, with no trading yet | Often treated as preparation, unless the contract prohibits it |
| Traded in the same market but with no link to your customers or information | Depends heavily on the contract and the employee’s role |
| Quoted your customers through the side business, or steered enquiries to it | Likely breach of fidelity and of contract |
| Used your price lists, customer data or supplier terms | Likely breach of confidence, fidelity and possibly the PDPA |
| Worked on the side business during paid working hours or with company equipment | Likely misconduct |
| Recruited colleagues to join the rival business while still employed | Likely breach of fidelity, especially for a manager |
Does it matter if the employee is a senior manager or a director?
Yes. Smile Inc distinguished the general duty of fidelity from fiduciary duties: an ordinary employee without management authority is not usually a fiduciary. A senior manager with real authority may owe fiduciary duties, and a director certainly does. Under the Companies Act 1967, a director must act honestly and use reasonable diligence (section 157) and must declare an interest in a transaction with the company (section 156). A director who diverts a business opportunity to their own company faces a more serious claim, and the remedies can include an account of the profits made. Our guide on conflicts of interest a director must declare covers the disclosure side.
What should the company do first?
- Keep it confidential. Limit knowledge to the people who need it. Tipping off the employee early can lead to deleted files and warned customers.
- Check public records. A business profile from ACRA’s Bizfile shows a company’s officers, shareholders and registered activities. It does not show trading, but it can confirm the employee’s involvement.
- Preserve company records. Secure email accounts, CRM logs, shared drives and company devices. Ask your IT provider to preserve logs rather than having managers browse through them.
- Stay within the PDPA. The PDPA allows an employer to collect and use employee personal data reasonably for managing or terminating employment without consent, but the PDPC’s advisory guidelines say employees must still be notified of those purposes, for example through the contract or handbook. Review company systems you have told staff may be monitored. Do not access the employee’s personal email, messaging apps or personal phone.
- Collect customer evidence carefully. A customer may forward a quotation from the side business. Ask neutrally and keep the original email with its metadata.
- Work out the loss. List the contracts or orders that appear to have been diverted, with values and dates.
Can we suspend the employee while we investigate?
Yes, within limits. Under section 14 of the Employment Act 1968, and as MOM explains on its page on termination due to misconduct:
- You may suspend the employee during the inquiry, but not for more than one week without the Commissioner for Labour’s approval.
- You must pay at least half the employee’s salary during the suspension.
- If you need longer, you must apply for approval at least three working days before the one-week suspension ends.
- If the inquiry does not find misconduct, the salary withheld must be restored.
Suspension also allows you to remove system access and stop customer contact while you investigate.
How do we run the inquiry?
MOM states there is no fixed procedure, but the employee should be told of the alleged misconduct, should have the opportunity to present their case, and the person hearing the inquiry should not be in a position suggesting bias. In practice:
- Write to the employee setting out each allegation specifically, such as the customers quoted, the dates and the documents used.
- Give them copies or a fair summary of the key evidence and reasonable time to respond.
- Hold a meeting chaired by someone who was not involved in gathering the evidence and has no personal stake. In a small company, consider an external person.
- Record the employee’s explanation. They may say the side business was approved, that customers approached them, or that the information was public. Check each point.
- Decide each allegation on the evidence and record the reasons in writing.
Our article on dismissing an employee for misconduct covers the inquiry in more depth.
What can the company do after the inquiry?
| Option | When it fits | Point to watch |
|---|---|---|
| Dismiss without notice | Misconduct established, such as diverting customers or misusing confidential data | The company bears the burden of proving the misconduct if challenged |
| Downgrade | Breach is real but less serious, such as undeclared non-competing work | Record the reasons |
| Suspend without pay for up to one week | A lesser penalty after misconduct is established | The one-week limit applies |
| Warning and conditions | Undeclared side business that does not compete | Require the employee to declare, close or restructure it |
A dismissed employee can bring a wrongful dismissal claim to the Tripartite Alliance for Dispute Management, generally within one month of the last day of employment. The Tripartite Guidelines on Wrongful Dismissal say that where misconduct is the reason, the employer must prove it, and a dismissal is wrongful if it cannot. Giving notice instead of dismissing summarily does not make a false or unproven reason safe.
Can the company recover the profits or losses?
Possibly, depending on the evidence and the employee’s position. The usual claims are:
- Damages for breach of contract and of the duty of fidelity, measured by the profit the company lost on diverted work.
- An account of profits, generally available where the employee owed fiduciary duties or misused confidential information. This focuses on what the employee gained rather than what the company lost.
- An injunction to stop continuing use of confidential information or dealings with customers, sought under the Rules of Court 2021.
Weigh cost against value. For a small diversion, dismissal and a firm letter may be enough. For a significant one, early legal advice matters because interim relief depends on acting promptly. Do not simply deduct the losses from salary: the Employment Act restricts deductions. If the employee then leaves and starts approaching customers, see our article on a former employee taking your clients and confidential information.
Evidence checklist
- Employment contract, outside-work and conflict-of-interest clauses, and any approval given
- Handbook or policy acknowledgement covering IT monitoring and confidentiality
- ACRA business profile of the side company
- Customer emails, quotations or invoices from the side business
- Company system logs showing downloads, forwarding or CRM exports
- Timesheets or attendance records if work on company time is alleged
- A schedule of diverted orders with values
- Inquiry letters, meeting notes and outcome letter
Example: a sales executive’s side distributorship
Example: a hypothetical industrial supplies company learns from a long-standing customer that a quotation arrived from a new company whose director is the supplier’s own sales executive. The ACRA profile confirms the executive is the sole director and shareholder. Company email logs, which the handbook says may be monitored, show the executive exported the customer list two months earlier. The company suspends the executive on half pay for a week, removes system access and writes setting out three allegations. At the inquiry, chaired by the finance director, the executive says the customers approached him. The company finds that at least four customers received unsolicited quotations using its pricing, dismisses him without notice, and asks a law firm on its panel to assess a claim for the diverted orders. The executive’s work on non-competing products is not relied on, because the company has no evidence it was done on company time.
Frequently asked questions
Can we look at the employee’s personal WhatsApp or phone?
Not without their agreement. Limit your review to company systems and devices that employees have been told may be monitored. Evidence on personal devices can sometimes be obtained through court processes if the matter proceeds.
The employee only registered a company. Can we dismiss?
Registration on its own may be preparation rather than breach, unless the contract prohibits it or requires approval. Investigate whether trading or customer contact has started before treating it as misconduct.
Do we need a restraint of trade clause to act?
No. Post-employment restraints matter after the employee leaves. While they are employed, the duty of fidelity, the duty of confidence and the contract’s express terms already apply.
Is this a police matter?
Usually it is a civil and employment matter. If you suspect theft of property or other criminal conduct, take legal advice before making a report, and keep your internal process fair in any event.
How long does the employee have to claim wrongful dismissal?
MOM’s guidance is that a wrongful dismissal claim should generally be filed with the Tripartite Alliance for Dispute Management within one month of the last day of employment. Managers and executives dismissed with notice generally need at least six months’ service to claim.
Need help with an employee running a competing business?
If your company, or you as a director or shareholder, is dealing with an employee who is secretly running a competing business, contact the Raffles Corporate Services team at [email protected] or on WhatsApp at +65 8501 7133 or +65 9018 0072. We will help you understand the documents and deadlines. Where your matter needs a lawyer, we will refer you to a firm on our panel of Singapore law firms that regularly handles employment disputes and breach of confidence claims. Raffles Corporate Services is a corporate services provider, not a law firm, and this article is general information, not legal advice.
The Raffles Corporate Services Editorial Team, Raffles Corporate Services