To many of us, employment contracts may be nothing more than long, boring documents with complex language that no one really reads. They’re simply formalities one needs to sign before getting to the real business. However, this could not be further from the truth, as these very contracts may govern the ‘real business’ you do.
How many of us have actually read the employment contracts we signed? For the more diligent ones among us, you may have noticed that they may contain non-compete clauses. Non-compete clauses usually seek to prevent employees from starting or entering into a similar profession or trade in completion against the employer for a certain period of time, say a year. This might come as a shock as one’s livelihood may depend on it. Is 1 year reasonable or too long?
When is a non-compete clause valid and enforceable?
Perhaps it is useful to think of non-compete clauses as a whole, rather than in its individual parts. This is because, in ascertaining if a non-compete clause is valid and enforceable, the Court will first look at whether the non-compete clause, as a whole, was intended to protect the employer’s legitimate proprietary interest. Secondly, the Court will look at whether the non-compete clause was reasonable in all the circumstances, being no wider than necessary to protect such interest.
The factors that the Court will take into account the following facts
What the legitimate proprietary interest(s) is/ are, which includes:
- the maintenance of a stable, trained workforce;
- employees with special and intimate knowledge;
- trade secrets; and
- trade connections;
Whether the scope was not wider than necessary, which includes:
- nature of the employee’s employment;
- duration of restraint;
- presence of any geographical limit; and
- whether the activities restrained was limited to the employer’s business activities;
Whether the said clause was in the interest of the public, which includes:
- the balancing of the legal right to freedom of trade and the countervailing doctrine of freedom of contract; and
- whether, assuming there had been a genuine settlement or compromise agreement in relation to disputes over restrictive covenants, that settlement of compromise agreement can be reopened by way of the doctrine of restraint of trade.
Past cases regarding non-compete clauses
In the case of Man Financial Pte Ltd v Wong Bark Chuan David, a non-competition clause of 7 months was held to be invalid and unenforceable not because of its duration, but because of its wide scope that prevented the employee from buying shares in any business that is in competition with the employer.
Similarly, in the case of Buckman Laboratories (Asia) Pte Ltd v Lee Wei Hoong, a non-competition clause of 1 year was held to be invalid and unenforceable not because of its duration, but because of its wide geographical location and scope that prevented the employee from engaging in employment in any of the employer’s businesses, not just not just the pulp and paper industry which the employee’s employment related to.
In sum, the duration of non-competition might be short, but the clause may still be invalid should its ambit be too wide. However, what if you discover a non-compete clause in your employment contract and feel unsettled by it? You may want to clarify with your employer about his intention or to obtain an opinion from an employment lawyer. Usually, employers insert such clauses in employment contracts to protect trade secrets and connections by preventing employees from leaking them (to their competitors or to the public) should they leave.