Navigating non-compete agreements after resigning from your job is a seemingly difficult task
Here are hadros Recruitment, we've placed numerous senior professionals with developers, investors and consultancies within the Sustainability & Real Asset sectors, which means supporting our candidates in resigning and navigating their exit agreements to ensure a smooth transition into their next role.
In this article, we look into what non-compete clauses are, their restrictions and how to best navigate them.
What is a non-compete agreement?
A non-compete agreement is a legal agreement, typically included in an employment contract which specifies that an employee must not enter into competition with an employer after the employment period is over.
These agreements also prohibit the employee from revealing proprietary information or secrets to any other parties during or after employment. However, in Singapore, non-compete clauses are subject to strict scrutiny by the courts and are governed by contract law
When are non-compete or solicitation clauses enforceable?
Generally, under Singapore law, non-compete clauses are prima facie void (at first appearance void) and unenforceable. However, it is not as straightforward, as the enforceability of a non-compete depends on a few factors such as whether:
It is necessary to protect a legitimate proprietary interest of the employer
It is reasonable in the interests of the parties
It is reasonable in the public interest
Legitimate proprietary interest:
Proprietary interest can be an advantage or assets which can be regarded as the employer's property such as trade secret, client and trade connections, and other confidential information crucial to the employer's business. The question then is whether it would be unjust to allow employees to appropriate such assets, advantages or connections.
Reasonable:
When a non-compete clause is in place to protect a legitimate proprietary interest, it must still be reasonable in its scope, duration and geographical coverage to become enforceable. The Singapore Courts evaluate non-compete clauses on a case-by-case basis, considering factors such as the nature of the business, the employee's role, and the potential impact on the employee's livelihood.
Is the clause employee specific?: Non-compete clauses which cover all employees regardless of their seniority, access to confidential information or trade secrets, may be considered unreasonable as it can be argued that the purpose of the clause was not to protect the employer's legitimate interest but rather to restrain competition illegally
Scope of activity being restrained: Activities being restrained by non-compete clauses must help the employer protect their legitimate proprietary interest. Blanket restraints which prevent employees from working for competitors in any position or any type of work, might be unreasonable. Restraint of trade preventing employees from working in the same industry are also likely to be unenforceable. However, it may be reasonable if the clause restricts employees from the specific areas of business which they had been involved with.
Duration: If there is no fixed duration, the court is likely to find the clause unreasonable. However, if there is a specified duration, the court will look at several factors to decide if the duration is reasonable. These factors include the employee's position, access to trade secrets or confidential information, influence with clients, the nature of the industry and whether the duration is at all necessary to protect client relationships. Generally, the duration must not be longer than necessary to protect the employer's legitimate interest.
Geographical scope: The geographical limits of the non-compete is also crucial. A clause with no geographical limits or one that covers an excessively broad area is likely to be deemed unreasonable. Reasonableness will also depend on a few factors such as whether the employee is restrained from doing business in specific countries, cities or a set radius from the employer's current business, and whether the employee had significant client contact in the area of restraint.
Should you be concerned about the non-compete or solicitation clause in your exit agreement?
If the scope of the non-compete is too wide, the Singapore Courts will do one of two things:
Strike off the entire non-compete so that the rest of the contract remains enforceable
Strike down the non-enforceable parts of the non-compete clause: The courts may apply a 'blue pencil test' to cancel out the parts of the non-compete clause which are unreasonable and unenforceable. In this, the court will cancel words in the clause only to the extent that the remaining words in the clause still make grammatical sense and retain their original meaning to become enforceable. However, the 'blue pencil test' is applied cautiously, and the court will not rewrite an unreasonable clause to make it reasonable
Therefore, if your non-compete clause is "too wide" and does not specifically state the duration and geographical scope, there should be little to worry about as it should be deemed unenforceable. However, if you are exposed to confidential information and legitimate proprietary interest, you should be mindful in your next move, ensuring that you do not infringe on your non-competes. Despite this, understanding the dismissal of the Shopee lawsuit (Shopee Singapore Pte Ltd v Lim Teck Yong [2024] SGHC 29) should highlight the courts' strict approach to enforcing non-compete clauses.
Despite the above information proving that non-competes are difficult to enforce, legal proceedings are still an expensive and lengthy process which can force ex-employees into a stressful situation. Which is why we encourage employees seek clarity on the scope of their non-compete clause upon resigning and consider consulting with an employment lawyer if they have concerns about its enforceability. Additionally, to ensure that you remain in everyone's good graces, it is important to complete your handover professionally.
While non-compete clauses are common in Singapore employment contracts, their enforceability depends on careful drafting and adherence to legal principles. Employers should ensure these clauses are tailored to protect legitimate business interests without unfairly restricting an employee's ability to earn a living. Employees, on the other hand, should be aware of their rights and seek legal advice if necessary
Disclaimer: hadros Recruitment is not a law firm and our article should not serve as legal advice, please engage an employment lawyer should you wish to have professional legal advice regarding your employment contract or non-compete clauses