Restrictive covenants, also known as post-termination restraints, are a common inclusion in employment contracts in Singapore. These clauses aim to protect a company’s legitimate interests but must be carefully drafted to ensure enforceability.
Non-compete clauses in Singapore
Non-compete clauses restrict an employee from engaging in competing business activities within a specific geographic area and time frame after leaving an employer. While these clauses are designed to protect a company’s market position and trade secrets, they are not automatically enforceable in Singapore.
Under Singapore law, covenants in restraint of trade, such as non-competes, are “prima facie” or “based on first impression” void unless the employer can prove they are reasonable. To be enforceable, a non-compete clause must:
- Protect a legitimate proprietary interest, such as trade secrets, confidential information, or trade connections.
- Be no broader than necessary in terms of duration, scope, and geographic coverage.
Courts in Singapore assess the reasonableness of non-compete clauses by examining factors such as the seniority of the employee, the type of industry, and the potential impact on the employee’s livelihood. For instance, restrictions on a senior executive with access to sensitive information may be more justifiable than for a junior staff member. Additionally, the duration of the restriction should not exceed what is necessary to safeguard the employer’s interests, with most enforceable clauses ranging between six to 12 months.
Employers are advised to define the scope and geographic limitations clearly to avoid ambiguity. Broad or vague terms may render the clause unenforceable.
Non-solicitation clauses in Singapore
Non-solicitation clauses prohibit an employee from soliciting a company’s clients, suppliers, or other employees after leaving the organisation. These clauses are generally seen as less restrictive than non-competes and are more likely to be enforced if they are reasonable and necessary to protect the employer’s interests.
To be valid, a non-solicitation clause must:
- Be limited to key stakeholders critical to the business.
- Specify a reasonable time frame for the restriction.
For example, preventing a former employee from poaching clients or employees for a year may be deemed reasonable, provided it does not overly limit the individual’s professional opportunities. Courts consider whether the clients or employees being protected have been directly nurtured by the departing employee. This ensures the clause is genuinely aimed at protecting the employer’s trade connections rather than unfairly restricting competition.
Employers should regularly review and update their non-solicitation clauses to reflect the evolving nature of their business relationships. Additionally, clear definitions of what constitutes “”solicitation”” can help prevent disputes.
Other restrictive covenants in employment contracts in Singapore
Employers in Singapore may also include other post-termination clauses, such as:
- Confidentiality clauses: These clauses prohibit former employees from disclosing sensitive company information after their employment ends. Unlike other restrictive covenants, confidentiality obligations often remain enforceable indefinitely. Employers should explicitly define what constitutes “”confidential information”” to avoid ambiguities.
- Garden leave provisions: During the notice period, employees may be required to stay away from the workplace while continuing to receive their salary. This helps protect company interests by preventing employees from accessing sensitive information or poaching clients and colleagues before their departure. Garden leave provisions also allow employers to prepare for a smoother transition without risking the loss of proprietary information.
- Non-disparagement clauses: These provisions prevent former employees from making negative statements about the company, its leadership, or its practices. While less common, non-disparagement clauses can help maintain a business’s reputation post-termination.
As with all restrictive covenants, these clauses must be reasonable and tailored to the specific circumstances of the employment relationship. Courts will assess whether the restraint is proportionate to the employer’s legitimate interests and does not unfairly disadvantage the employee. For example, confidentiality obligations that cover general industry knowledge, rather than proprietary information, may be deemed overly broad and unenforceable.