Non-compete clauses are quite common in employment contracts for certain industries in Singapore. They typically seek to restrict an employee’s right to engage in a similar occupation with a competitor for a period of time after the termination of the employment contract.
However, what many employers who include such clauses are not aware of is that they are enforceable only in certain limited circumstances. Singapore is considered to be an employer friendly jurisdiction, where labour rights legislation has a relatively limited scope. However, non-compete clauses is one area in which the courts have developed a body of common law that can result in non-compete clauses being found to be inherently unreasonable and unenforceable, to the detriment of employers. Here are 5 examples of such situations:
- Role requires low level skills
Non-compete clauses are designed to prevent employees with highly specialised skills from essentially stealing a company’s entire business and bringing them to a competitor. If your employee is a data entry clerk, he’s not likely to be able to do that and preventing him from doing data entry anywhere he likes will probably be seen as unreasonable.
- The clause purports to prevent the employee from engaging in a similar occupation anywhere in the world
It is reasonable for companies to want to protect trade secrets from their competitors . However, if your company only does business in Singapore and your employee wants to work in a similar role in Africa, he’s not competing with you, and a non-compete clause that tried to stop him from working in a similar role in Africa will probably be seen as unreasonable.
- The clause purports to prevent the employee from engaging in a similar occupation for a period of 10 years after the termination of the employment contract
Non-compete clauses are designed to give employers an opportunity to re-hire a suitably skilled replacement and train him up to an adequate level. How long it will take to do that obviously depends on how specialised the work is but a 10 year non-compete is probably unreasonable for any role.
- The employee works in the back office and has no direct contact with clients
If your employee’s role doesn’t involve him interacting with clients, he’s probably not in a better position than anyone else to convince them to leave your company for a competitor, as he doesn’t have a relationship with them. Preventing him for working for anyone else after he leaves your company will probably therefore be regarded as unreasonable.
- The interest the employer seeks to protect in having a non-complete clause is to protect the company’s confidential information but the employment contract also contains a confidentiality clause
Here’s one a lot of employers don’t know. If the only reason you included a non-compete clause was to prevent employees from stealing confidential information (such as your client list), but you also included a confidentiality clause that sought to prohibit employees from taking such confidential information after employment is terminated, then your non-compete is probably unenforceable. Singapore’s courts have found that if you include both a confidentiality clause and non-compete clause, this means that the interest you seek to protect with your non-compete clause must be something that you haven’t already protected anywhere else in your employment contract. If you don’t actually have any other legitimate reason to need a non-compete, then the courts are likely to find it unreasonable and unenforceable. So if you are primarily interested in protecting your client list, you can use a confidentiality clause OR a non-compete clause, but not both!
This is just a snapshot of a few things to watch out for with non-compete clauses, but as a general rule, don’t draft or sign an employment contract without getting a lawyer to review it, or even better, draft it. Ultimately, having a professionally drafted employment contract is likely to save you a lot of trouble down the line if your employer-employee relationship turns sour.
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This article is written by Nadia Moynihan from August Law Corporation.
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.