Non-Compete/Non-Competition Clause In Singapore

by 14 November 2023Knowledge & Insights

Navigating the complexities of the workplace and employment laws can be challenging, particularly when understanding the implications of non-compete clauses. These contractual provisions, designed to limit an employee’s ability to engage in competitive activities during or after the employment period especially for the same industry.

The non-compete clause in Singapore is enforceable and can have far-reaching implications for employers and employees. This article delves into the intricacies of non-competes in Singapore’s legal framework, discussing their scope, duration, enforceability, and the legal remedies available during a breach.

By exploring the non-compete clause, non-competition clause, and restraint of trade in Singapore, we aim to provide a comprehensive overview of this critical component of employment contracts.

Non-Compete Clauses Legal Framework

Overview Of Contract Law In Singapore

Contract law in Singapore is a comprehensive system designed to safeguard the rights and responsibilities of all parties involved in an agreement. Within the employment sector, contract law plays a significant role in dictating the terms of employment and outlining the obligations of both employers and employees.

One aspect that often arises within this context is the inclusion of non-compete clauses within an employment contract. These clauses or agreements protect a company’s proprietary and confidential information, competitive advantage, and customer relations by limiting an employee’s ability to engage in competitive activities post-employment.

Validity And Enforceability Of Non-Compete Clauses

Despite their ubiquity, the enforceability of non-competes is not absolute. Singapore Courts carefully scrutinise these clauses for their reasonableness. A non-compete clause will be enforced only if it’s reasonable in terms of its scope, duration, and geographical coverage. It should be as relaxed as necessary to protect the employer’s legitimate business interests.

It should not overly infringe on the employer’s legitimate proprietary interests or the employee’s right to earn a living. If a non-compete clause is deemed too wide or excessive, it may be considered a ‘restraint of trade’, which is generally not enforceable.

Scope And Duration Of Non-Compete Clauses

The scope of non-competes generally refers to the activities that the employee is restricted from undertaking after leaving their job. It could involve working for a competitor, starting a competing business, or soliciting clients or colleagues from a former employer.

The duration, however, refers to the time the restrictions apply post-employment. For both scope and duration, the principle of reasonableness applies. A non-compete clause with an extensive scope or a longer duration may be considered unreasonable and, therefore, unenforceable.

Each case is evaluated on its merits, considering factors like the nature of the business, the employee’s role, and the potential impact on the employee’s livelihood.

Enforcement And Remedies

In cases where a valid non-compete clause is breached, the employer has several legal remedies available. These include seeking an injunction to prevent the further breach and claiming damages for losses suffered due to the breach.

However, claiming damages often requires proof of actual loss, which can be challenging. It’s worth noting that the Courts may refuse to enforce a non-compete clause if they deem it unreasonable, even if the parties have agreed to it.

Considerations For Employees And Employers

For employees, it’s crucial to understand the implications of a non-compete clause before signing an employment contract. If the restrictions are too broad or the duration too long, it may significantly limit their career opportunities post-employment.

For employers, while non-competes protect their business interests, they must ensure these clauses are reasonable and fair. Striking a balance between business protection and freedom of employment is essential to crafting an enforceable non-compete clause.

Relevant Statistics And Cases On Non-Compete Issues

Quantifiable data and statistics on non-compete clause enforcement in Singapore is limited. However, several notable cases demonstrate how the Courts approach such issues.

For example, in a 2012 case involving a dental surgery clinic and former employee, the High Court enforced a six-month non-compete clause, considering it reasonable.

These cases underscore the importance of carefully drafting non-competes to ensure they are fair, necessary and reasonable.


Best Practices And Practical Tips

When crafting non-compete clauses, tailoring them to specific roles and limiting their duration and geographical scope to what is necessary to protect both the employee and employer’s legitimate interests is a recommended practice for employers.

In particular, an employer should ensure that each non-compete clause is customised to the individual employee, considering the nature of their role, access to confidential information, and relationships with clients.

To tread it effectively, it is paramount to understand its nuances. Both employers and employees need to take heed of certain practices to ensure they protect their interests whilst maintaining a fair and legal approach. Here are some expanded tips and best practices:

For Employers

Tailor The Clause To The Employee

It’s not prudent to use a uniform non-compete clause for all employees. The role, level, and responsibilities of each employee vary, as does their access to sensitive business information. For instance, a clause that suits a senior executive might be inappropriate for a junior analyst. Tailoring non-competes to individual circumstances makes them more likely to be upheld by the Court.

Imposing Reasonable Restrictions

A non-compete clause should be designed such that the scope, duration, and geographical limitations are reasonable. Overly restrictive clauses can seem predatory or unfair, which can make them unenforceable in Court. Moreover, a reasonable clause is likely to receive less resistance from the employee, leading to a harmonious professional relationship.

Clearly Define Prohibited Activities

Be explicit about the activities the employee cannot engage in after leaving the company. Generalised or vague prohibitions can lead to confusion and potential disputes, and may be deemed unenforceable.

Regularly Review And Update Clauses

Business needs, market conditions, and employee roles are dynamic. As such, employers should regularly review non-competes to ensure they remain appropriate, relevant, and legal.

For Employees

Understand Before Signing

Always ensure you fully understand the implications of a non-compete clause before signing your employment contract. Consider consulting with a legal professional if you’re unsure about any aspect of the clause or if it seems excessively restrictive.

Negotiate The Terms

If you believe the non-compete clause to be too broad or restrictive, remember that you have the right to negotiate its terms. Negotiations can encompass aspects such as the duration of the clause, geographical scope, and what precisely constitutes competition.

Seek Legal Advice

If you’re uncertain about how a non-compete clause may impact your future employment opportunities, don’t hesitate to consult with a legal expert. Legal advice is especially important if you’re facing enforcement of a non-compete clause upon leaving a job.

Keep A Copy Of Your Contract

Always retain a copy of your employment contract and any subsequent amendments, including the non-compete clause. This is an important reference point in the case of any future disputes or misunderstanding regarding your post-employment obligations.

Conclusion On Non-Compete Clauses In Singapore

In conclusion, non-compete clauses are crucial in protecting businesses in Singapore. However, their enforceability hinges on careful drafting and a clear understanding of the law. Both employers and employees must navigate these agreements with due diligence and, where necessary, professional advice.

If you feel like such clauses exist within your contract and feel them detrimental to you, you may speak with an employment lawyer for advice. In Singapore’s dynamic landscape of employment, a thoughtful approach to non-competition agreements can go a long way in safeguarding interests and ensuring fair play.

Frequently Asked Questions About Non-Compete Clauses In Singapore

How Can An Employee Negotiate A Non-Compete Clause?

An employee can try to negotiate the terms of a non-compete clause by limiting its scope, reducing its duration, narrowing its geographical coverage, or even seeking a compensatory clause for the period of restriction. It’s recommended to speak with a professional when negotiating such an agreement.

Can A Court Modify A Non-Compete Clause?

While the ‘blue-pencil test’ (a doctrine allowing Courts to modify unreasonable contracts to make them reasonable) is not usually applicable in Singapore, the Court may refuse to enforce an unreasonable non-compete clause.

Are Non-Compete Clauses Necessary In All Employment Contracts?

Not necessarily. Non-compete clauses are typically used when employees can access confidential information, such as trade secrets, confidential business strategies, or key clients. Such a clause may only be necessary for roles with access to such information.

What Happens If An Employer Enforces An Unreasonable Non-Compete Clause?

If a non-compete clause is deemed unreasonable, it may be cited unenforceable. This means the employer may be unable to prevent the employee from engaging in competitive activities, and any attempt to do so could lead to legal repercussions.

What Is A “Restraint Of Trade” Clause?

A “restraint of trade” clause is a type of agreement that restricts an individual’s ability to conduct business or trade freely. In an employment context, a non-compete clause is a form of restraint of trade designed to prevent an employee from competing with the employer during and after employment.

What Does “Undue Hardship” Mean In A Non-Compete Clause?

“Undue hardship” refers to the excessive burden or difficulty placed on an employee due to a non-compete clause. If a clause is so restrictive that it significantly inhibits an employee’s ability to find suitable work after leaving a company, it may be considered to cause undue hardship and could be deemed unenforceable.

Can An Employer Enforce A Non-Compete Clause If They Terminate An Employee?

Whether a non-compete clause can be enforced following termination largely depends on the specific circumstances and the wording of the clause. It may be enforceable if the contract states that the clause applies to any form of termination. However, if the termination was unfair or without cause, a Court may be less likely to enforce the clause.

Are Non-Compete Clauses Applicable To All Industries In Singapore?

While non-competes can technically be used in any industry, they are more common in sectors where employees can access sensitive information, proprietary knowledge, or key customer relationships. These sectors include technology, finance, consultancy, and senior management roles across various industries.

What Is The Significance Of Geographical Limits In A Non-Compete Clause In Singapore?

Geographical limits in a non-compete clause specify the region where the former employee is prohibited from competing with their previous employer. In Singapore, for such a clause to be enforceable, the geographical scope should be reasonable and commensurate with the employer’s legitimate business interests. For instance, a worldwide restriction may be seen as overly broad for a local business with no international operations. If the geographical limit is too extensive and deemed unreasonable by the Court, it could render the entire non-compete clause unenforceable.

About the author

About the author

Tembusu Law


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