Keith Ho, General Manager
Often found in employment contracts, non-competition clauses that restrict an employee from joining a rival company can be a source of anxiety and confusion.
However, their inclusion in a contract does not guarantee they are enforceable, as Singapore law places strict limits on their use to ensure they are not used to unfairly curb worker mobility.
The Ministry of Manpower is discussing with its tripartite partners – the National Trades Union Congress and the Singapore National Employers Federation – on how and when restrictive clauses in employment contracts can and should be used, based on established principles that the Courts have articulated.
Here is a look at the current legal landscape.
The Legal Test for Enforceability
Under Singapore law, a non-compete clause – also known as a restraint of trade clause – is considered void and unenforceable on the face of it.
For a company to enforce such a clause, it must be able to prove in court that the clause is both reasonable and necessary to protect a “legitimate proprietary interest“.
Legal experts say this interest cannot simply be a desire to prevent competition. Instead, it must relate to specific assets, such as confidential trade secrets, key client relationships built on behalf of the company, or maintaining a stable, skilled workforce.
What Do the Courts Consider ‘Reasonable’?
If a legitimate interest is established, the clause must still pass the test of reasonableness. The courts will examine three main factors:
- Duration: The length of the restriction should be no longer than necessary to protect the business interest. A shorter period, such as six months, is more likely to be upheld than a restriction lasting a year or more.
- Geographical Scope: The area of the ban must be aligned with the employer’s area of business. A worldwide restriction would be difficult to justify for a company that primarily operates in Singapore.
- Scope of Activities: The clause must be specific and not be so broad as to prevent an individual from working in their entire field or industry.
Guidance from Tripartite Partners
The tripartite advisory cautions employers against using non-compete clauses as a standard term for all employees.
It highlights that such clauses are generally not reasonable for junior staff or lower-wage employees who do not have access to sensitive information that could be used to harm the business.
The advisory encourages companies to use these clauses selectively and only when genuinely necessary to protect their business.
Advice for Employers and Employees
Employers are advised to ensure that any non-compete clause is drafted narrowly and specifically tailored to the employee’s role and the risk they pose upon leaving. Using a one-size-fits-all approach increases the likelihood of the clause being deemed unenforceable.
For employees, legal experts recommend carefully reviewing these clauses before signing an employment contract.
Individuals who feel they are subject to an unfair clause can seek advice from MOM or the Tripartite Alliance for Fair and Progressive Employment Practices (TAFEP).
Disclaimer
The information contained herein is provided for general informational purposes only. While every reasonable effort has been made to ensure the accuracy of the information, inadvertent errors or omissions may occur. No representations or warranties, express or implied, are made regarding the accuracy, completeness, or suitability of the information provided. The authors expressly disclaim any and all liability arising from, or in connection with, any errors or omissions. Recipients are advised to seek independent legal counsel for advice pertaining to their individual circumstances.
