Non-competition Clauses

Restraint of trade clauses, also known as non-compete clauses, are frequently inserted into employment contracts to prevent resigning employees from joining a competitor. This article will examine the validity of such clauses.

Non-Competition Clauses

Non-compete clauses are frequently seen in employment contracts. Such contracts prevent an employee from joining competitors after they resign. Are such clauses valid?

Non-compete clauses are presumed in the eyes of the law to be unenforceable. For an employer to successfully enforce a non-compete clause, he has to first show that he has a “legitimate proprietary interest” to protect.

Confidential information, trade secrets, customer and supplier contact lists are considered “legitimate proprietary interests” of the employer and protected under employment law.

Usually, it is easier for the employer to prove this requirement for senior level management employees who are presumed to have access to such information. However, this presumption can be rebutted by evidence.

If the employer is able to show to the Court that he has a legitimate proprietary interest to protect, the employer then has to show that the clause is reasonable. The burden of proving that the clause is reasonable lies on the employer.

Non-compete clauses will be upheld and enforced by the Singapore courts if they satisfy the test of reasonableness and are specific as to (i) geographical scope; (ii) width; and (iii) time, and go no further than necessary to protect the employer’s legitimate proprietary interest.

(a) Geographical scope – for the geographical scope to be reasonable, the clause should ideally refer to Singapore or at the very most another country. If the clause is silent on geography, then it is presumed to ban the employee from working for competitors worldwide and will be struck down as unenforceable.

(b) Width – the language of the clause should be very specific. Simply saying "The employee shall not work for a competitor" fails the width test.

(c) Time – to satisfy the reasonableness test, the clause should also be specific as to time. The Singapore courts have held that 9 to 12 months is a reasonable time for a non-compete clause for senior employees.

If a clause is intended to maintain a stable, trained workforce, how, then, can it be argued that such a clause is a mere device to prevent the employee from entering the service of the new employer merely on the ground that the latter is a competitor of the original employer? If, of course, the clause is in fact such a device, it would be tantamount to a bare and blatant restriction of the freedom to trade; it would be a covenant in gross

Court of Appeal Singapore, Man Financial (S) Pte Ltd (formerly known as E D & F Man International (S) Pte Ltd) v Wong Bark Chuan David

Filed under: Employment Law
Benjamin Li Yong Le

About the Author - Benjamin Li Yong Le

Benjamin Li Yong Le (“Ben”), is an Advocate & Solicitor of the Supreme Court of Singapore. Ben is currently running his own boutique corporate and commercial law firm under the name and style of L’Avocat Law.

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