'Singapore's courts have made it a bit more difficult for non-compete restraints to be enforced,' lawyer says.
Just recently, Manpower Minister Tan See Leng advised employers in Singapore to be mindful of enforcing their restraint of trade clauses.
"In a tight and competitive labour market, employers would be wise to carefully weigh their use of such clauses, against their ability to attract prospective employees," Tan said.
Restraint of trade clauses are only enforceable if there are legitimate business interests to protect, according to the minister.
They should also not be used "simply to stymie business competition or gain an unfair advantage."
Also recently, HR expert Ian Liew criticised the non-compete clause for employees of Lazada Singapore who were made redundant in January.
So how can HR teams best approach non-compete clauses?
Clarence Ding, partner at Simmons & Simmons, described the challenges for employers when it comes to non-compete clauses in Singapore.
“These types of clauses are unenforceable in Singapore,” he told HRD Asia. “Unless you are able to show that a) you have an interest that requires protection and b) that the scope of the restraint is reasonable in the circumstances.”
And there are a number of key reasons why an employer may want to prevent an employee from working at a competing business.
It would be in situations where, by competing against the former employer, the former employer could either lose clients… Or in cases where, for example, the employee takes information that was acquired in the course of working with a former employer and by going across to a new employer, would be in a position to exploit this information or to give a benefit to the new employer.”
Another reason Ding mentioned is the interests of a company to ensure a stable and trained workforce, and having a competitor constantly poaching employees would be detrimental to the business.
Singapore’s government is set to introduce guidelines on restrictive clauses in employment contracts in 2024.
“We are working together to develop a set of tripartite guidelines to shape norms and provide employers with further guidance on the inclusion of restrictive clauses in employment contracts,” Singaporean Minister for Manpower Tan See Leng said in February.
"These guidelines are currently being finalised and are targeted for release in the second half of this year."
According to the minister, the tripartite partners’ position is that employers should only include restraint of trade clauses – also known as non-compete clauses – in employment contracts, “if there is a genuine need for such clauses to protect legitimate business interests”.
“Restraint of trade clauses must be reasonable in terms of scope, geographical area, and duration – they must balance employers' needs to safeguard their businesses and employees' ability to earn a living and should not be used to provide an unfair advantage,” Tan said.
Ding believes the guidelines are not going to be too prescriptive and will provide an outline of what would be considered appropriate if an employer were to seek to enforce a non-compete clause against a departing employee.
Ding explained that Singapore’s position on non-compete clauses is different from other Commonwealth countries such as Australia, UK, Hong Kong and Canada.
“Singapore’s courts have made it a bit more difficult for non-compete restraints to be enforced because they have held that if the only interest that a company has, which requires protection, is its confidential information, that interest is sufficiently protected so long as your contract already contains a confidentiality clause,” Ding said. “Attempting to enforce a non-compete clause on this basis would be an unlawful restraint of trade.”
He went on to suggest that HR teams consult with lawyers when it comes to non-compete clauses as it is a very nuanced legal issue.
“Given that the legal principles are not set out in one document but in various different judgements from the courts over the years, I think it's crucial to at least get sounding from an employment lawyer as to whether such a clause is valid and enforceable.”
Ding also highlighted the importance of HR teams understanding the roles and responsibilities of their employees to determine whether to launch legal action around non-compete clauses. For example, consider the information obtained by front-office/client facing employees versus back-office staff.
“If you’re looking at a front-office employee, then you can perhaps credibly say ‘yes, this person had access to our clients and in fact helped us to develop relationships with ABCD clients who are very crucial to our business now. Allowing them to go our competitor would mean that these clients are at risk’,” Ding said.
“In that scenario, I would say that yes, you would probably have a more credible case as to whether [a non-compete clause] is enforceable.”
