Singapore non-compete clause guidance will be welcomed

Manpower minister Tan See Leng recently announced the forthcoming guidelines in parliament, with these guidelines expected to be released in the second half of 2024. The minister stated that the guidance will aim to educate employers and shape norms.

Currently, the enforceability of restrictive covenants in Singapore is governed by common law – developed by the courts through case law – with no official guidelines or regulations governing these clauses. However, “the guidelines will provide a welcome addition to the legal landscape on restrictive covenants in Singapore,” said Mayumi Soh of Pinsent Masons MPillay, the Singapore joint law venture between MPillay and Pinsent Masons.

Non-compete clauses, also known as restraint of trade clauses, are common in employment contracts. They generally aim to prevent employees from competing with the company shortly after leaving their job, whether by joining an industry competitor or by setting up a competing business. If a company considers an employee or ex-employee to have breached the provisions of a non-complete clause, it can apply to a court for an injunction, thereby preventing the employee from accepting or continuing employment with a competitor, or from setting up the competing business, as the case may be.

Whether or not clauses will be enforceable is currently assessed by the courts on on a case-by-case basis. Civil courts have established principles on when such clauses are acceptable and can be upheld, as well as determining the situations where restrictions are unreasonable, unjustified, and thus void. The courts assess if there is a genuine business need for the clause, and specifically if there is a legitimate proprietary interest to protect, and whether the scope of the restraint is reasonable. They also balance employers’ needs to safeguard the business and employees’ ability to earn a living, taking into account that the clause should not be used to help the business gain unfair advantages. Overly restrictive restraint of trade clauses can disadvantage ‘retrenched’ employees who have been made redundant and create difficulties in finding employment.

Soh said: “This move is also consistent with a wider trend which is seen in some other international jurisdictions whereby regulators are increasingly extending their reach into private agreements between employers and employees to regulate the use and scope of these covenants.”

In light of these forthcoming guidelines, businesses may be required to review current employment contracts including non-compete clauses. It is important that any existing clauses are reasonable and justified, taking into account factors such as the sector, geographical area and duration of employment, Soh said.