To Compete or Not to Compete – Challenges in the Imposition and Enforcement of Non-compete Provisions in Employment Contracts in Singapore

Introduction

Earlier this year, the Ministry of Manpower (“MOM”) expressed that it intends to issue a set of guidelines on the use of non-compete clauses in employment contracts. The guidelines are currently being finalized and are targeted for release later this year. While the guidelines are not legally binding on employers, they are strongly encouraged to adhere to any recommendations set out in the guidelines, as the MOM may review the employment practices of employers who fail to comply with the guidelines and impose restrictions on work passes. When the guidelines come into effect, they are also likely to be taken into consideration by the Singapore courts in deciding disputes in relation to the enforceability of non-compete clauses.  

Various jurisdictions across the globe (e.g., the United States, Australia, and the United Kingdom) have, in recent times, taken a stricter approach towards the use of non-compete provisions. In Asia, non-compete clauses are extremely difficult to enforce in certain jurisdictions. In India, for example, non-compete clauses have typically been held to be void for being in restraint of trade under the Indian Contract Act 1872.

The MOM’s intention to develop a set of guidelines on the use of non-compete provisions may be analyzed alongside two recent cases before the Singapore courts where employers have brought claims against their former employees for breach of non-compete provisions in their employment contracts. In both cases, however, the employers did not manage to successfully enforce the non-compete provisions. These cases are discussed in turn below.

Overview of the legal position in Singapore

Under Singapore law, non-compete clauses in employment contracts are prima facie void and unenforceable, unless the employer can demonstrate that such a clause (a.) is necessary to protect a legitimate proprietary business interest of the employer, and (b.) is reasonable in the interests of the parties and reasonable in the public interest. Courts assess reasonableness with regard to the scope of restriction, geographical area, and duration of the non-compete restraint.

The decision in Shopee Singapore Pte Ltd v Lim Teck Yong [2024] SGHC 29 (“Shopee”)

In Shopee, the Singapore High Court dismissed Shopee’s application to restrain its former employee, Lim Teck Yong (“Lim”) from commencing employment with a competitor. At the point of accepting Shopee’s offer of employment, Lim had agreed to and signed both an agreement containing non-compete and non-solicitation provisions, as well as an employee confidentiality agreement which contained provisions requiring him to undertake post-employment obligations relating to the protection of Shopee’s confidential proprietary information.

Shopee had the burden of proving that there was a serious case that the non-compete restriction was valid and enforceable, in that it protects a legitimate proprietary interest, is reasonable in the interest of the parties and the public, and that Lim has breached the restriction. Shopee failed to do so.

The Court stressed, in particular, that where the protection of the confidential information or trade secrets is already covered by another clause in the contract, the employer will have to demonstrate that the restraint of trade clause in question covers a legitimate proprietary interest over and above the protection of confidential information or trade secrets. As there was already an employee confidentiality agreement in force imposing post-employment obligations relating to the protection of Shopee’s confidential proprietary information, Shopee was unable to establish any legitimate proprietary interest over and above the protection of confidential information that would require enforcement of the non-compete clause.

The decision in MoneySmart Singapore Pte Ltd v Artem Musienko [2024] SGHC 94 (“MoneySmart”)

In MoneySmart, Artem Musienko (“Musienko”), a former employee of MoneySmart, took up employment with a subsidiary of MoneyHero Limited (“MoneyHero”), a competitor of MoneySmart. MoneySmart sought to obtain interim injunctions to prevent Musienko from working with the competitor.

As with the case in Shopee, Musienko had also entered into an agreement containing a non-compete provision, as well as a confidentiality provision imposing post-employment obligations relating to the protection of MoneySmart’s confidential information.

In its decision, the Singapore High Court reiterated that MoneySmart would have to establish that the non-compete clause covered a legitimate proprietary interest over and above the protection of confidential information or trade secrets. The Court further clarified that difficulties associated with policing any breach of the confidentiality clause would not be sufficient to show that a non-compete clause should be enforced, as such difficulties do not establish any legitimate proprietary interest over and above the protection of confidential information or trade secrets.

Key takeaways

The assessment of whether non-compete provisions should be enforced in Singapore remains highly fact-specific.

While it is unlikely that the MOM would recommend the imposition of an outright ban on the use of non-compete clauses in employment contracts, it is likely that the Singapore courts will place greater scrutiny on whether such clauses are necessary if there are adequate confidentiality as well as non-solicitation and non-dealing restrictions in place. It is therefore increasingly important for employers to carefully consider and identify the legitimate proprietary business interests that they are seeking to protect in the imposition of non-compete clauses.