March 12, 2024

Singapore’s MOM clarifies query on enforceability of non-compete clauses in employment contracts.

“The Courts have held that restraint of trade clauses are enforceable only if there are legitimate business interests to protect”, the Ministry affirmed.

The enforceability of non-compete clauses (or trade clauses) in employment contracts is subject to adjudication by the Courts in Singapore and is dependent on the facts of the case, Singapore’s Ministry of Manpower has clarified.

The Ministry was responding to a Parliamentary query on whether it anticipates stricter enforcement of such clauses across industries; how it will impact startup and talent mobility within the Singaporean workforce, as well as the type of support available to employees facing potentially unfair non-competition clauses in their employment contracts.

MOM affirmed: “The Courts have held that restraint of trade clauses are enforceable only if there are legitimate business interests to protect. Restraint of trade clauses must also be reasonable in terms of scope, geographical area, and duration – they must balance employers’ needs to safeguard their businesses and employees’ ability to earn a living, and should not be used simply to stymie business competition or gain an unfair advantage.”

Thus, it added, the application of these principles by the Courts already ensures that such clauses do not adversely impact Singapore’s labour market flexibility and mobility, and that smaller firms such as startups are not unfairly disadvantaged by their competitors’ use of restraint of trade clauses.

“There are genuine business reasons why employers may need to include restraint of trade clauses in their employment contracts, such as to protect trade secrets and trade connections.

“The facts of each case are different, and it is not possible for MOM to anticipate the future tendency of employers to enforce such clauses. However, in a tight and competitive labour market, employers would be wise to carefully weigh their use of such clauses, against their ability to attract prospective employees,” the Ministry highlighted.

Coming to the point on support for employees, MOM urged those who believe they have been subject to unreasonable employment clauses to seek assistance from their unions, the Tripartite Alliance for Fair and Progressive Employment Practices (TAFEP), or the Ministry itself.

In that vein, MOM noted that the number of complaints received by TAFEP in recent years, over restraint of trade clauses, has remained lows.

In a response to a related Parliamentary query in February, the Ministry shared that it is working together with the tripartite partners to develop a set of tripartite guidelines to shape norms and give employers more guidance on the inclusion of such clauses in employment contracts, especially for jobs where the impact to the worker’s livelihood is potentially greater and where the nature of the job is unlikely to have a nexus with legitimate proprietary business interests.

These guidelines are currently being finalised and are expected to be released in the second half of 2024.


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