The recent dismissal of Shopee’s lawsuit against an ex-employee has shed light on non-compete clauses in Singapore.

What is a non-compete clause and criteria for enforceability

Generally, a non-compete clause, which is commonly found in employment contracts, imposes restrictions on employees from working for competitors after their current employment ends. The enforceability of such a clause, however, is not absolute. A non-compete clause will only be enforced if it is reasonable and protects a legitimate proprietary interest of the employer.

Legitimate Proprietary Interest

A proprietary interest is an asset or advantage which is considered as the employer’s property. The Singapore courts recognise that client and trade connections are considered as legitimate proprietary interests.

Reasonableness

In considering reasonableness, the Singapore courts will generally look at the scope of activity, duration and geographical coverage of such a clause.

1. Scope of activity
   
   Generally, if the scope of restricted activity is too wide, the non-compete clause will be deemed unreasonable. This includes situations where there is a ‘blanket prohibition’ preventing the employee from working in the same industry, regardless of the similarity with the employee’s previous scope of employment.


2. Duration
   
   Generally, such period of restraint should not be longer than necessary. A non-compete clause that does not have a fixed period of restraint may be deemed unreasonable.


3. Geographical Coverage
   
   Generally, a non-compete clause that has no geographical limit at all is likely to be deemed as unreasonable.

While such a clause seeks to protect an employer’s business interests, it should not overly infringe on the employee’s right to find employment.

Shopee’s case explained

Returning to Shopee’s case, Shopee’s ex-employee was not to pursue employment with any competitor within 12 months of leaving Shopee. The dispute was about the scope of the ex-employee’s responsibilities with Shopee and the similarities between the Shopee and ByteDance job scope. While Shopee argued that the ex-employees new role with ByteDance was “substantially similar” to the roles he had in Shopee, the ex-employee maintained that he mainly had a supporting role and that while Tiktok Shop operates in the United States, United Kingdom and parts of Southeast Asia, his last role with Shopee was in Brazil, where Tiktok Shop does not currently operate. In relation to knowledge of confidential information, Shopee was unable to present any specific confidential information the ex-employee had access to and said the concern was ‘more with the general know-how’ that the ex-employee was privy to.

Shopee’s sought injunctions from the court to restrain the ex-employee from accepting employment with ByteDance, from soliciting Shopee’s clients and employees and a springboard injunction to restrain the ex-employee from being employed with any of Shopee’s competitors. However, the Singapore court dismissed Shopee’s injunctions.

The judge dismissed Shopee’s case, explaining that Shopee did not show how there was a serious question to be tried about whether the non-competition clause was breached. He cited a ‘lack of legitimate proprietary interest’ and ‘reasonableness of the geographical restraint’ as reasons for casting doubt upon its non-competition restrictions.

Considerations for employers and employees before the employment contract is signed and practical tips

If an employer would like to include a non-compete clause, the employer should tailor the clause to a specific role and limit their scope of activity, duration and geographical coverage to what is necessary to protect both the employee and the employer. Such a clause should ideally be customised according to the employee’s role and responsibilities.

Before signing an employment contract, an employee should review terms carefully if there is a non-compete clause, to consider the implications of such a clause and whether it will affect future job opportunities. If an employee believes that a non-compete clause is too broad or restrictive, the employee should negotiate such terms.

Upcoming guidelines

The Ministry of Manpower (MOM) and its tripartite partners are finalising guidelines on such non-compete clauses which will be made known in the second half of 2024.