As an employee, it is possible to find a non-compete clause in your employment contract. A non-compete clause is a stipulation or provision utilised by employers to prevent their employees from engaging in business in specific markets or geographical locations for a fixed duration of time.
Simply put, a non-compete clause aims to regulate an employee’s conduct throughout the course of his or her employment, and/or even after his or her employment period, such as after the employment contract is terminated.
A non-compete clause is also referred to as a restraint of trade clause, as it restrains or constricts an employee’s freedom or independence to do potential business with relevant parties.
A non-compete clause may also include a non-solicitation clause, which restricts a former employee from soliciting employees or clients from a previous employer.
Typically, employers may opt to restrict their employees from working with another organisation or company throughout their employment period with them.
Note, however, that once the employment contract is terminated, non-compete clauses may not be enforceable unless:
A proprietary interest can be defined as an asset or advantage considered to be the property of the employer. If a former employee were to appropriate the employer’s property for his or her own purposes, this would be unfair to the employer.
The asset or advantage shall not refer to the skill or know-how acquired by the former employee during their period of employment with the employer.
The Singapore court acknowledges that trade and client connections are classified as a legitimate proprietary interest. However, a non-compete clause that aims to restrain competition illegally is unenforceable.
Numerous factors can affect how reasonable a scope a non-compete clause can have. For every factor, the Singapore court will scrutinise whether the non-compete clause is reasonable both between the parties, and for the interests of the general public.
The following are common examples of the factors used to examine how reasonable the scope of a non-compete clause is:
If a non-compete clause applies to all employees regardless of their nature of work, seniority, or accessibility to access confidential information, then the clause may be deemed as unreasonable. Such clause would signify the employers’ true intention of restraining competition.
A non-compete clause may be deemed unreasonable if it includes the following:
How reasonable the period of restraint is depends on numerous factors, including:
An employer must not determine the period of restraint arbitrarily, as its duration should not be longer than necessary. Without a fixed period, a non-compete clause is considered unreasonable and unenforceable.
A non-compete clause’s geographical scope must aim to protect the actual and existing business of the employer—and not just the possibility of obtaining business in the future. This geographical limit must be where the former employee had substantial and actual contact with the client. If the non-compete clause sets no geographical limit, such as being applicable worldwide, then it is likely deemed to be unreasonable.
Note that a non-compete clause may forbid a former employee from doing business in specific countries, in specific cities in a country—particularly for big countries that have larger geographical areas, and inside a set radius surrounding the employer’s present areas of practice.
In some instances, special circumstances exist when the employer offers the employee something extra for accepting the non-compete clause. The employer for example, could offer the employee payment for the duration of non-competition. The court may consider the non-compete clause reasonable since the employee receives compensation.
If a non-compete clause is found to be unenforceable, the court may opt to do either of two things depending on the circumstances:
The court has the authority to strike down the entire non-compete clause from the employment contract as it is deemed unreasonable.
When it comes to striking down just the unenforceable portions of a non-compete clause, Singapore court refers to the doctrine of discretionary severance and thus apply the “blue pencil test.”
The court may only strike down specific parts of the non-compete clause if the original meaning of the clause is unaffected, and if the remaining words are grammatically correct. Thus, a “blue pencil” cannot be used to fix an unreasonable or unenforceable non-compete clause if there is nothing that can be cancelled or removed to make the clause a reasonable one.
If, for example, an unenforceable non-compete clause did not explicitly state the restraint period, then the court will have nothing to fix or cancel out to make it a reasonable clause with a specific restraint period.
Employers that break a non-compete clause may opt to use the following remedies:
It is strongly recommended that an employee and/or employee consult with an experienced lawyer to seek assistance in drafting an enforceable non-compete clause, as well as determining whether a non-compete clause is actually enforceable.