Since the case of Shopee Singapore Private Limited v Lim Teck Yong [2024] SGHC 29 was decided in favour of Mr Lim, the ex-employee of Shopee, questions have been raised by employers and employees about the enforceability of non-compete clauses in Singapore.
In a nutshell, non-compete clauses are restrictive covenants in an employment contract which restrict an employee’s ability to work for or engage in trade with the competitors of their former employer for an agreed duration upon the termination of their employment contract with the former employer.
The defendant in the Shopee case, Lim, joined a competitor, ByteDance, after working for Shopee for more than eight (8) years. Relying on the restraint clauses to which Mr Lim had previously agreed, Shopee sought interim injunctions to prevent Mr Lim from working for ByteDance and from soliciting their clients. Alternatively, Shopee sought a springboard injunction to restrain Mr Lim from working for any of their competitors.
Shopee claimed that Mr Lim had breached or was about to breach certain restraint of trade clauses and that it had legitimate interests in protecting its confidential information, trade connections, and stable workforce through the non-compete clause. After much consideration, the Court rejected Shopee’s case against Mr Lim. The Court ruled that the scope of the non-compete clause was such that it was doubtful whether the scope was reasonable for the protection of Shopee’s legitimate proprietary interests or reasonable in the interest of the public because, amongst other factors, it was too broad in terms of geographical scope. The Court further held that Shopee’s interest in the protection of confidential information was already protected by the Employee Confidentiality Agreement signed between Shopee and Mr Lim.
As elucidated in the above paragraphs, the detailed judgement passed by the Court shows the nuances involved with the interpretation of non-compete clauses, especially when they are extensive in duration or sweeping in geographical scope. It can be inferred that the Court’s decision affirms the importance of seeking advice from legal counsel when drafting and interpreting non-compete clauses.
Employers who engage legal counsel to advise on the enforceability of non-compete clauses in their employment contracts will be able to obtain professional input as to whether the restrictive covenants in their employment contracts are considered to be reasonable, valid, and enforceable. On the other hand, employees who engage legal counsel to advise on the enforceability of non-compete clauses in their employment contracts prior to signing will be in a better position to determine the enforceability of such clauses and potentially better negotiate such restrictive covenants with their prospective employers..
The starting point under Singapore law is that, for public policy reasons, non-compete clauses are void and unenforceable under Singapore law because it restrains trade. The presumption can, however, be rebutted if it can be established that the non-compete clause protects the employer’s legitimate proprietary interest and once this is established, the restrictive covenant will be enforceable if it is in addition: (a) reasonable in the interests of both the parties involved and; (b) reasonable in the public interest to enforce the covenant.
Where such interests are already covered by other clauses, such as non-disclosure or non-solicitation clauses, the onus is on the employer to prove that the non-compete clause protects its interests in a way that is over and above what is included under other clauses.
Save for the foregoing, the Courts may employ other tests to determine the validity, reasonableness, and hence enforceability of non-compete clauses. These various analyses applied by the Courts highlights the complexity of the law on non-compete clauses. It is therefore recommended that if non-compete clauses are to be analysed in light of the prevailing Singapore law, legal counsel should be engaged to do so.
The dismissal of Shopee’s lawsuit against its ex-employee highlights the challenges faced by employers when enforcing non-compete clauses. These challenges are founded in the complexity of the case law surrounding non-compete clauses, particularly in the nuanced legal principles surrounding their enforceability and validity.
By hiring a lawyer to draft their employment agreements, employers would be assured that the legal principles of restrictive covenants would be thoroughly considered when drafting such clauses. This will increase the probability of the non-compete clauses being enforceable, thereby protect the legitimate proprietary interests of the business of companies.
Doing so would not only save costs by avoiding future disputes, but more importantly, it would protect business interests.
The ruling of the Court in the Shopee case affirms that Courts would typically be slow to uphold restrictive covenants which go further and beyond the protection of legitimate proprietary interests of employers. The ruling is likely to be celebrated by employees as it shows that employees are unlikely to be unduly restricted when they leave their ex-employers for new employment.
Having a good understanding of how the Courts interpret employment contracts in light of the law on non-compete clauses would be useful for any employee who is looking to sign a fresh employment agreement with their prospective employer, as well as for those who are looking to leave their employment for new opportunities.
One of the strongest indicators that legal advice should be sought is when a non-compete clause restricts an employee for a long duration post-employment and in relation to a wide geographical scope. In such instance, it is highly recommended that the employee engages a lawyer to review the enforceability of such non-compete clauses and determine how their employee rights may be safeguarded.
Seeking legal advice before agreeing to a non-compete clause will increase the likelihood that your employee rights are well-protected, and clear up any of your doubts about your obligations pursuant to non-compete clauses.
The significance of the Shopee case is evident by how it prompted the Ministry of Manpower and its tripartite partners to prepare guidelines on non-compete clauses. While these guidelines lack the force of law, they are likely to be of persuasive value for the Courts to determine the enforceability of non-compete clauses.
Importantly, the Shopee case demonstrates that the application of the law on non-compete clauses is neither straightforward nor unequivocal. Rather, many factors are considered by the Courts when deciding whether a non-compete clause should be enforced.
A lack of understanding of non-compete clauses may negatively affect an employer’s business interests, heighten the risks of litigation between employers and employees, and lead to potential loss of new opportunities on the part of an employee who is looking to change roles in the job market.
It is thus in your best interests to have your employment agreements reviewed by legal counsel, regardless of whether you are an employer or an employee.
*****
Our firm frequently draft and advise on employment agreements for both employers and employees, including the enforceability of non-compete clauses.
The author, Waltson Tan, is a corporate lawyer trained in London and Singapore. He is qualified as an advocate and solicitor in Singapore, and has more than eight years of post-qualification experience.
Waltson focuses his practice on mergers and acquisitions, private equity, joint ventures, investment funds and other general corporate and commercial transactions. He has also represented numerous leading multinational organisations on a broad spectrum of corporate, regulatory, cross-border restructuring and employment matters.
Waltson also advises clients on a monthly and yearly retainer basis, where he provides dedicated services to each client in relation to the issues which clients face, including general corporate and employment related matters.
If you require further information and/or expert guidance on the above or any other area of law, you may wish to contact the author of the article, whose details are as follows:
Waltson Tan Director +65 8079 0028 waltson.tan@28falconlaw.com |
Office address: 101A Upper Cross Street #13-11, People’s Park Centre Singapore 058358 |