Learn how we simplify the principles behind non-compete clauses, understand their enforceability and stay updated on the latest developments
Written by Kate Loo and Ericz Ezekiel Tay
WHAT YOU NEED TO KNOW
What is a non-compete clause? A non-compete or restraint of trade clause is an arrangement commonly found in employment letters/contracts that prohibits an employee from joining a competitor for a specified period, such as 6 months following the termination of the employment relationship.
Is it enforceable? Yes, a non-compete clause can be enforceable if it is carefully considered and the arrangement is reasonable. The arrangement should strike a balance between the business' need to protect its interests and the employee's ability to earn a livelihood. Typically, the enforceability of these arrangements hinges on two primary factors:
1. Is there a valid interest that the business seeks to protect, such as trade secrets, business connections?
2. Are the non-compete terms reasonable in terms of scope, geographic area and duration?
This assessment often requires an examination of the employee's role within the business and the sensitive information they may access during their employment.
Implications. A poorly considered or inadequately drafted non-compete clause may render it invalid and unenforceable, posing risks to the business interests it was designed to safeguard. Many non-compete clauses are declared unenforceable because their scope, geographical or duration are too wide and prolong.
Latest development. On February 6, 2024, the Singapore Government announced forthcoming guidelines regarding the use of non-compete clauses. These guidelines, slated for release in H2 of 2024, aim to provide clarity on the parameters for such clauses. The scope, timeline for implementation, and whether the guidelines will have retrospective application or only affect new employment relationships remain unclear.
ACTION REQUIRED
For Businesses. If you are in the process of hiring new key employees or currently have key employees who may pose an immediate risk of departure, it may be helpful to review your existing non-compete arrangements to safeguard the interests of your business, which may include protecting valuable business connections or proprietary information.
For other current key employees, businesses may opt to await the release of the forthcoming guidelines in H2 of 2024 before conducting a comprehensive review of their non-compete arrangements.
For Individuals. If you are considering transitioning into a new role, it may be prudent to review your current and any new non-compete arrangements. For current non-compete arrangements, this proactive step can help you avoid potential legal disputes with your current employer or pre-emptive actions, such as your employer seeking an injunction to prevent your move to a new company and/or claiming compensation for losses suffered, or even the loss of a job offer if your prospective employer is notified of the non-compete obligations.
For non-compete arrangements with your new employer, seeking legal advice will ensure that it achieve a fair balance between the protection of your rights and the employer's interests.
Get in touch with either Kate or Ericz to examine the implications of non-compete clauses for your business or for your personal situation. We are here to partner with you, offering an unbiased perspective and exploring practical alternatives.