Singapore considers including non-compete clauses in labour contracts

Currently, the enforceability of restrictive covenants are governed by common law in Singapore, and there are no statutes or official guidelines governing these clauses.

Mayumi Soh of Pinsent Masons MPillay, the Singapore joint law venture between MPillay and Pinsent Masons, said: “Non-compete or restraint of trade clauses are provisions typically found in employment contracts of higher level executives and employees with access to confidential information and trade secrets. Typically, such clauses prevent employees from plying their trade or skill or engaging in businesses in certain markets and geographies during and for a specified period after the termination of employment.”

If a company considers an employee or ex-employee to have flouted the provisions of a non-compete clause, it can apply to court for an injunction. The court will then consider whether the clause is enforceable. Restrictive covenants are only enforceable if they are reasonable and protect the legitimate proprietary interest of the employer. What is considered reasonable is assessed on a case-by-case basis having regard to the facts of the case.

Restrictive covenants were originally developed as a way for employers to protect their proprietary interests such as confidential information, trade secrets, and customer relationships.

In a statement to Singapore's parliament, MOM said: “restraint of trade clauses must be reasonable – they must balance employers’ needs to protect their businesses and employees’ ability to earn a living”.

The tripartite partners’ position is that "employers should only include restraint of trade clauses in their employees’ employment contracts if there is a genuine need for such clauses to protect legitimate business interests".

For low-paying jobs, it appears that MOM will be recommending that employers avoid including restraint of trade clauses in employment contracts, as employees in low-paying jobs are less likely to be exposed to information that would significantly harm the interests of their employer. A restraint of trade clause may also have a greater impact on the livelihood of these lower paid employees. Higher paid jobs are more likely to interact substantially with the employer's legitimate business interests than lower paid jobs. There may be more occasions where employers have a reason to include a restraint of trade clause in the employment contracts of employees in higher paid jobs to protect their legitimate business interests.

In 2019, the National Trades Union Congress (NTUC) assistant secretary Zainal Sapari cited examples of “one-sided and unethical clauses” which take advantage of workers' “vulnerable position” and called for more measures.

The MOM responded to this and said it had been in "active discussions" with its tripartite partners on such issues and would ensure that unreasonable contract terms did not become the norm here in the workplace.

The MOM considered that “while there are legitimate reasons why employers include restraint of trade clauses in employment contracts such as to protect trade secrets and trade connections  or  impose liquidated damages for specific contractual breaches (such as breaking a training bond), excessive or unreasonable use of such practices cannot be justified”, Channel News Asia reported at the time.