MURC Singapore
Non-competes are agreements or provisions in employment contracts that restrict an employee from competing with their employer after their employment ends. In recent years, non-competes have faced growing scrutiny worldwide. In May 2023, the United Kingdom announced plans to cap non-competes in worker contracts at three months. In April 2024, the US Federal Trade Commission (FTC) attempted a nationwide ban on non-compete clauses, citing their negative effects on wages, innovation, and economic dynamism. While this ban was blocked by a Texas district court, such decision is under appeal. In Singapore, the Ministry of Manpower (MOM) has announced discussions with tripartite partners on restrictive clauses (including non-competes) in employment contracts, with guidance to be released. In April 2023, MOM advised against non-competes in lower-paying job contracts. Under current Singapore law, non-competes are generally unenforceable unless they meet strict criteria. The global trend and the difficulty of enforcement make it essential for employers to consider alternative protections.
Difficulty in Enforcing Non-Competes
Non-competes are unenforceable unless it fulfils the criteria of being: (i) reasonable; AND (ii) going no further than is necessary to protect a legitimate proprietary interest of the employer.
“Reasonableness” includes reasonableness as between the employer and employee, and as a matter of public policy. The Singapore courts generally look at scope of activity, duration and geographical coverage, in assessing reasonableness, but may take into account all relevant facts and circumstances.
Legitimate proprietary interest refers to business interests which are recognised by the Courts as being worthy of protection. The most common categories of legitimate proprietary interests include trade connections and trade secrets. It is not enough to simply assert the existence of legitimate business interests. In attempting to enforce a non-compete clause, the employer must prove in fact and through good evidence in the Court of law, that a breach of the non-compete will undermine specific legitimate business interests of the employer. Further, if the claimed proprietary interests are protected through some other mechanism, then the proprietary interests will not be regarded as legitimate. For example, the Singapore Courts have held that where there are already confidentiality obligations imposed on the employee, then the employer cannot rely on protecting trade secrets as a legitimate proprietary interest. Finally, non-competes must go no further than necessary to protect the legitimate interest of the employer.
If any non-competes do not fulfil any of the above criteria, it would be regarded as unenforceable. Since the Court has significant discretion to take into account all facts to determine if a non-compete is unreasonable or not, careful drafting is needed to achieve an enforceable non-compete clause. Even carefully drafted clauses face uncertainty due to the court’s discretion to assess reasonableness. This makes it challenging to rely on non-competes alone, necessitating alternative mechanisms.
Alternative Protection Mechanisms
The recent Singapore High Court case of Infosystems Pte Ltd v. Voon South Shiong [2024] SGHC 237, illustrates that an employer need not solely rely on non-competes and may rely on other causes of action. In this case, while employed at an IT systems company, a senior employee collaborated with a competitor he helped establish. He shared confidential business information, including client lists, pricing strategies, and financial data, with the competitor. He also prepared business plans and project bids for the competitor, diverting opportunities from his employer. After resigning, he provided business development services to the competitor through his own company, and eight other employees left to join the competitor.
The non-compete and non-solicitation clauses in his contract were found unenforceable. The non-compete clause was considered by the Court as overly broad, restricting any engagement perceived as detrimental to the employer, exceeding what was necessary to protect trade connections. The non-solicitation clause was considered by the Court as unreasonable as it applied to all employees, despite the employee’s responsibilities being limited to managing sales staff, and there was no evidence that all employees were integral or irreplaceable.
However, the court held him liable for breaching his contractual confidentiality and non-conflict obligations, as well as the implied duties of good faith and fidelity. Sharing confidential information, and assisting the competitor while still employed constituted breaches of confidence and of his non-conflict duties. The competitor and the employee were also found liable for inducing other employees to breach their contracts and for engaging in unlawful means conspiracy.
The court awarded the employer S$445,685 against the employee for his contractual breaches, breach of implied duty of good faith and fidelity and breach of confidence, and S$433,741 jointly against the employee and the competitor for inducing breaches and conspiracy, amounting to S$879,426 in total damages.
The Infosystems case demonstrates that employers can rely on alternative causes of action to protect their business interests when restrictive covenants like non-compete and non-solicitation clauses are unenforceable. The following legal principles were successfully invoked by the employer:
Summary
While non-competes are commonly used, they are difficult to enforce. Employers should also consider other protective measures. Legal claims, such as breaches of confidentiality, confidence, and good faith, offer alternative remedies. Non-contractual strategies, such as placing employees on garden leave to restrict access to sensitive information, protecting critical data on a need-to-know basis, and informing competitors of departing employees’ obligations, can further mitigate risks.
