Is Your Non-Compete Clause Enforceable in Singapore?

What are Non-Compete Clauses?

Non-compete clauses are commonly found in employment contracts in Singapore.

Typically, a non-compete clause prevents employees from plying their trade or skill or engaging in businesses in certain markets and geographies for a certain period of time.

It may purport to exert control over an employee’s actions during the employment period (e.g. to prevent moonlighting) and/or after the termination of the employment contract.

In Singapore, non-compete clauses are part of a bigger group of clauses known as restraint of trade clauses. Restraint of trade clauses restrict the liberty of the employee to carry on trade with parties in the future.

Another example of a restraint of trade clause is the non-solicitation clause, which prevents a former employee from soliciting clients or employees away from the prior employer.

Are Non-Compete Clauses Legally Enforceable in Singapore?

Singapore employers are generally entitled to restrain their employees from moonlighting, or doing other jobs while working for them.

However, non-compete clauses that apply after the termination of the employment contract are enforceable in Singapore only if:

1. The non-compete clause protects a “legitimate proprietary interest” of the employer, and
2. The scope of the non-compete clause is reasonable.

These issues on the enforceability of non-compete clauses in Singapore are summarised in the following infographic. You may click on the infographic to download it in a new tab.

1. What can be a legitimate proprietary interest?

For a non-compete clause to be legally enforceable, it has to be protecting a proprietary interest of the employer that is legitimate.

Such proprietary interests can be an advantage or asset which can be regarded as the employer’s property, and it would be unjust to allow the former employee to appropriate this for his own purposes. However, this advantage or asset should not be the skill or know-how that the employee acquires as part of his job during his employment.

An employer can have a legitimate proprietary interest in:

• Trade secret protection – Restraining an employee from misusing any trade secrets (i.e. confidential information).
• Client and trade connections – Protecting the special trade connections established by the employee with the employer’s customers.
• Workforce stability – Maintaining a stable, trained workforce especially in an industry that is relatively small and specialised which requires the employer to invest significant resources into training its employees.

However, where the protection of confidential information or trade secrets is already addressed by another contractual clause, the employer will have to demonstrate that the non-compete clause in question covers a legitimate proprietary interest that is more than just protection of confidential information or trade secrets.

Clauses that do not protect a legitimate proprietary interest, but instead seek to illegitimately restrain competition, may not be enforceable in court.

2. Is the scope of the non-compete clause reasonable?

Various factors can affect the reasonableness of the scope of a non-compete clause. For each factor, the reasonableness of the clause will be determined based on whether it is reasonable:

1. As between the parties themselves; and
2. In the interests of the public (e.g. securing an environment in which freedom of trade and competition can flourish).

Examples of factors that determine the reasonableness of the scope of a non-compete clause include:

(a) Scope of employees being restrained

Non-compete clauses that are drafted to cover all employees regardless of their seniority, nature of work or level of access to confidential information may be considered unreasonable.

This is because the clause’s indiscriminate application to all employees would suggest that the true purpose of the non-compete clause was for restraining competition, instead of protecting any of the employer’s legitimate interests.

(b) Scope of activity being restrained

The activities being restrained by the non-compete clause must be those that will help the employer protect their legitimate proprietary interest.

For example, a clause may be reasonable if it restricts the employee from the specific area of business that they had been involved with,

On the other hand, it may not be reasonable for a clause to:

• Include a “blanket prohibition” preventing the employee from working in the same industry entirely;
• Entirely preventing the employee from working for a rival, regardless of the employee’s scope of work with the new employer; or
• Cover activities that entail minimal expertise and are not integral to the company’s operations.

(c) Duration that the employee is being restrained for

Whether the duration of restriction is reasonable would depend on factors such as the particular employee’s:

• Nature of the work performed
• Seniority level, his skill level
• Level of influence with clients
• Access to confidential information
• Particular industry

The duration should not have been arbitrarily chosen. It must also not be longer than that needed to protect the employer’s interest. For example, one measure is the time needed for a new employee to have a reasonable opportunity to demonstrate their effectiveness to clients.

Restraining the employee for a longer period of time may also be reasonable if the employer is looking to protect their client connections, and it would take some time for a newcomer to build their own such connections in the employer’s particular industry.

Non-compete clauses with no fixed duration of operation may be found to be unreasonable.

(d) Geographical scope of restraint

The geographical area(s) which the former employee is being restrained from will also affect the reasonableness of a non-compete clause.

Depending on the wording of the non-compete clause, it may restrain the former employee from carrying out business:

• In certain countries
• In only certain cities in a country (especially very big countries spanning across large geographical areas)
• Within a certain radius around the employer’s current areas of practice

However, the geographical scope of the non-compete clause should be necessary to protect the employer’s actual and existing business. This is as opposed to protecting the possibility of acquiring future business. There generally has to be a geographical limit to where the former employee had actual and significant client contact.

In order to be reasonable in the public interest, the geographic restriction on the employee in certain markets also cannot adversely affect competition in those markets.

Non-compete clauses with no geographical limitations at all (i.e. they apply worldwide) may potentially be unreasonable.

Not Sure What To Do Next?

Get a 20-minute phone call with a lawyer for only $59

Arrange a call now

EMPLOYMENT

Examples: Advice on wrongful termination, non-compete clauses etc.

Select

Select

Nadia Moynihan

R.W. Law Practice | 11 years experience | English, Malay

Nadia’s practice represents a broad cross-section of the kind of legal services that most businesses and individuals typically need, regardless of industry sector or client profile, with a particular focus on dispute resolution. She regularly advises corporate and private clients on schemes of arrangement, bankruptcy proceedings, trade disputes, employment disputes and a wide array of other contractual and tortious claims from fraud to defamation. Her litigation practice draws upon her experience representing clients in complex multi-jurisdictional cases involving misappropriation of funds and shareholder disputes. She has also represented numerous employers and employees in claims relating to wrongful dismissal, breach of employment contracts and harassment in the workplace. She has significant experience handling highly contentious cases of all kinds from State Courts to Court of Appeal level. Her matrimonial practice features cross-border disputes regarding child custody and the enforcement of maintenance as well as High Court litigation pertaining to the division of substantial matrimonial assets located in multiple jurisdictions. Her criminal practice includes experience representing clients in prosecutions for drug offences, sexual offences and violent offences ranging from voluntarily causing hurt to homicide. She also has experience representing children charged with criminal offences. Nadia’s non-contentious practice includes the drafting of various commercial agreements such as shareholders’ agreements and distribution agreements as well as personal legal instruments such as wills, lasting powers of attorney and deed polls. Nadia is on the panel of lawyers of a number of embassies in Singapore.

Qualifications / Admissions

• LLB (Hons), National University of Singapore
• Advocate & Solicitor of the Supreme Court of Singapore
• Solicitor of the Senior Courts of England & Wales

Memberships

• Irish Chamber of Commerce, Singapore;
• The Medico-Legal Society of Singapore;
• Association of Criminal Lawyers of Singapore;
• The Law Society’s Family Law Practice Committee
• The Law Society’s Criminal Law Practice Committee;
• Singapore Association of Women Lawyers
• AIJA - International Association of Young Lawyers

Selected Cases

• OMG Holdings Pte Ltd v Pos Ad Sdn Bhd [2012] 4 SLR 231: Pleadings, limitation issue
• BMR v BMS [2013] SGDC 421: Care and control and access of child, maintenance
• JAI v JAI [2014] SGDC 382: Maintenance for wife
• TDI v TDJ [2015] SGFC 11: Care and control, overnight access
• TAT v TAU [2015] SGFC 19: Custody, care and control, access, relocation
• THH v THI [2015] SGFC 135: Interim maintenance for wife and child
• PP v Rosdi Bin Joenet [2016] SGHC 58: Sentencing for homicide in case of mental illness.
• Public Prosecutor v ASR [2018] SGHC 94: Sentencing of intellectually disabled young person for aggravated rape.

Select

Che Wei Chin

Fervent Chambers | 12 years experience | English, Mandarin

In the field of litigation, Wei Chin was lead counsel for many types of matters and clients such as:

1. Civil and commercial disputes
2. Submitting and presenting mitigation pleas successfully to obtain lighter sentences for clients charged in criminal matters, including non-custodial sentences
3. Divorce and ancillary matters disputes, including helping parties through Court Mediation
4. Private prosecutions for a government statutory board and obtaining deterrent sentences against the offenders
5. General solicitors’ work in extracting Grant of Probate and Letters of Administration
6. General solicitors’ work in managing landlord and tenancy agreements and disputes
7. General Commercial Drafting and Advisory Work

His wide range of experience in litigation includes tenancy disputes, writs of possession, claims concerning breaches of director’s duties, probate matters, criminal matters, matrimonial matters and various other types of litigation work. Wei Chin recognises that not all matters need to proceed for a full-fledged trial. Having taken Mediation & Negotiation modules in NUS, Wei Chin can capably advise on settlement options, achieving an amicable resolution which is more affordable and efficient than going for trial. Wei Chin has also advised government agencies and statutory boards, helping them to resolve disputes through negotiations and litigation, depending on their goals and aims. Wei Chin also takes on commercial contract drafting and contractual negotiation work to protect the interest of his clients when they are entering commercial deals. He has experience being a legal advisor to a local tertiary educational institute and assisted in vetting their intellectual property contracts. Civil & Commercial Disputes

• Lead Counsel in a dispute involving an ex-finance manager of a renowned bakery being sued for breach of fiduciary duties and other money claims – successfully defended the manager such that all claims were dismissed.
• Lead counsel in contract dispute regarding business consultancy agreements, limitation issues and Legal Profession Act.
• Lead counsel in construction dispute with interior designer for defective works.
• Lead counsel in a supply agreement dispute concerning a local beautician boutique.
• Negotiating a successful settlement involving a potentially Michelin-starred restaurant and its renovation contractors, avoiding a lawsuit of close to $0.4 million.
• Lead counsel in a High Court claim for contractual breach: acted for an independent business consultant in suing 3 business owners for breach of consultancy agreement.
• Lead counsel in High Court defamation claim of a manager defaming a director of a listed company.
• Negotiating a successful settlement involving a defamation claim by a businessman against a university professor.
• Assisting counsel in obtaining a Mareva Injunction for a claim amounting to more than S$3 million.
• Negotiating a successful settlement involving an anti-competition lawsuit by a large rice supplier, thus preventing a prohibitive injunction.
• Advising and successfully negotiating a settlement for a government statutory board concerning a dispute with an oil supplier.

Criminal Matters

• Lead Counsel in a disposal enquiry between two victims of a Bitcoin scam.
• Lead counsel in securing an acquittal for client charged with criminal trespass and outrage of modesty in Marina Bay Sand hotel.
• Lead counsel in successfully securing probation for an Uber driver suffering from frotteurism who touched passenger’s thigh. During appeal by the Prosecution, the Accused did not appoint Mr Che as a lawyer (due to financial constraints). Accused’s sentence was later increased to imprisonment when fresh facts arose during appeal.
• Lead counsel in a shop theft matter where Accused took toys without payment from a well-known toy store.
• Lead counsel in various plead guilty matters for offences regarding:
  • Penal Code Section 377BB (voyeurism)
  • Penal Code Section s. 405 to 409 (criminal breach of trust)
  • Companies Act Section 157 (breach of company director’s duties)
  • Road Traffic Act (reckless driving, drink driving etc)
  • Common Gaming House Act (gambling)
  • Animals and Birds Act 1965 (importation of live animals etc)

Select

Jeannette Chong-Aruldoss

Robert Wang & Woo LLP | 33 years experience | English, Mandarin

Working with clients to help them find real solutions to legal issues that are causing them stress and worry isn’t just a job, it’s something I’m passionate about. It’s a calling. I was called to the Singapore Bar in 1989, and have since chalked up three decades of active legal practice. I’ve acquired the experience and knowledge across a diverse range of legal matters, enabling me to bring a broad-based approach to problem-solving. Where a fight is called for, I’ll bring a hands-on and passionate approach to advocating and championing my clients’ interests.

Select

Ronald Yeo

Yeo Marini Law Corporation | 8 years experience | English, Hokkien, Mandarin

Ronald started off his career as an economist before deciding to pursue a second degree in law. He has worked as a legal counsel in both public and private sector including various international banks. However, the corporate career gave him less satisfaction as compared to helping the layperson. Coupled with his passion to serve and connect with people on the ground, Ronald decided to go back to his original roots and to practise community law.   A person-oriented individual with a practical and realistic mindset, Ronald is able to provide advice with sound reasoning, and at the same time, ensure that it is in the best interest for the client. Hardworking and output driven, he is a hands-on lawyer who sees through any matter from start to finish.   Ronald has a particular interest in family law. Being a father of 3 children himself, he is a strong advocate of being a present parent and understands the challenges one faces during the course of marriage. He believes that the child’s interest is of utmost importance in any marriage. Ronald is able to empathize and apply his legal mind in matters relating to child custody, care and control, and maintenance quantum for children. When push comes to shove and marriage is no longer possible, Ronald is able to represent clients for any divorce proceedings, both contested and uncontested. Ronald is able to speak both the Chinese and English language.

Special circumstances

The employee had suggested or negotiated on the non-compete clause included in the agreement

If the scope of the non-compete clause had been suggested or negotiated for by the employee, the court may be more likely to find that the non-compete clause is reasonable.

For example, if an employee had suggested to reduce the non-compete clause’s duration of restraint from 1 year to 7 months and the employer accepts this proposal, the court is less likely to let the employee now turn around and say that the duration of 7 months is unreasonable.

Where the contract requires the employee to acknowledge that the scope of the non-compete clause is reasonable

Some employment contracts may include clauses requiring the employee to:

• Agree that the non-compete clause is “reasonable and necessary” for the protection of the employer’s interest; and/or
• Agree to the non-compete clause in view of how the employee will be paid a certain sum of money under the employment contract.

The court has held that such clauses do not have any effect on the enforceability of the contract’s non-compete clause.

This is because the enforceability of a non-compete clause depends on its scope (as discussed above), instead of whether the employee has acknowledged that the clause is reasonable.

Otherwise, there may be the undesirable situation of a non-compete clause that goes against public policy being enforceable, just because the employee has agreed that the non-compete clause is reasonable.

Pre-emptive attempts to save a potentially unenforceable non-compete clause

Some non-compete clauses may state that if any parts of the clause are found to be unenforceable, then the clause will continue to apply with any deletions or modifications that may be necessary to make it valid and enforceable.

While this may be trying to pre-empt what the court will do to unenforceable non-compete clauses (more below), it is unlikely that the court will find such a non-compete clause enforceable.

This is because such a clause will put employees in an uncertain position if they try to leave their employer later on, as they will not know the extent of the restraint against them.

What Happens If a Non-Compete Clause is Found to be Unenforceable?

If the scope of the non-compete clause is too wide, the Singapore court will generally do one of 2 things:

1. Strike down just the non-enforceable parts of the non-compete clause

The court may apply a “blue pencil test” to “cancel out” (as if using a blue pen) the parts of the non-compete clause that are unreasonable and hence non-enforceable. This is also known as the doctrine of discretionary severance.

The court can do this “cancelling” only to the extent that the remaining words in the clause still make grammatical sense and retain their original meaning.

However, the “blue pencil test” cannot be used to fix an unreasonable non-compete clause if there is nothing that can be cancelled out to make the clause reasonable.

For example, if a non-compete clause is unreasonable because it does not state how long it is to restrain the employee for, then there is nothing in the clause that can be cancelled out to make the clause’s duration reasonable.

2. Strike down the entire non-compete clause

The court can also strike down the entire non-compete clause from the contract.

What Can an Employer Do if a Former Employee has Breached an Enforceable Non-Compete Clause?

1. Apply for an injunction

If a former employee appears to have breached an enforceable non-compete clause, the employer can apply for an injunction to stop the employee from breaching it any further.

2. Claim for damages

The employer can also claim damages (i.e. compensation) for the former employee’s breach of the non-compete clause.

Case Study: MoneySmart Singapore Pte Ltd v Artem Musienko

The defendant, former Head of Technology of the claimant’s Bubblegum division, resigned and joined MoneyHero, a rival of the claimant as Head of Engineering, Insurance. The dispute centred around a non-compete clause that restricted the defendant from engaging with any Southeast Asian business offering financial product comparison services. The restraint period of 3-12 months was drafted in a  “cascading” manner, intending to make the court apply the severance doctrine and enforce the longest permissible restraint period.

The claimant argued that their legitimate proprietary interest was in maintaining a stable, trained workforce. However, the court found this claim unfounded as:

1. The Claimant and MoneyHero did not operate in a small and highly consolidated industry unlike a niche one like the marine winch industry.
2. The claimant did not invest significant resources to build the defendant’s skills from scratch, as he already had relevant experience.

Since a legitimate proprietary interest was not set out, the non-compete clause was unenforceable. However, the court further explained why the clause unreasonable:

• Scope of activity – The defendant had no involvement with MoneySmart’s financial product comparison services or platform, and there was no close connection between his role and those services since he only operated Bubblegum Insurance.
• Geographical scope – The defendant’s work and products were only in Singapore, and was not involved with MoneySmart’s other services in Singapore and Hong Kong, or any other Southeast Asian markets. Hence, it was unreasonable to restrict him from anywhere other than Singapore.
• Temporal scope – The cascading restraint period created uncertainty and undue pressure on the defendant, with the shortest period of restraint still being unfair as it gives the claimant multiple bites of the cherry..

The clause was struck down entirely as the unreasonable nature of it cannot be saved either by the claimant’s choice of what to enforce or through severance.

—

If you need legal advice on whether a non-compete clause is enforceable, or need assistance with drafting an enforceable non-compete clause, please consult an employment lawyer.