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Restraint of Trade Clauses In Singapore

WHAT ARE RESTRAINT OF TRADE CLAUSES?

Restraint of trade clauses are common clauses which governs various commercial relationships. It is frequently deployed in employment contracts to restrain key employees of the company from competing with the company during and after the period of employment. Restraint of trade clauses are typically in the form of non-compete or non-solicitation clauses.   

As restraint of trade clauses can be very restrictive in nature, the court have held that take would take a more liberal approach when assessing the enforceability of such clauses in the context of a Joint Venture or a business to business agreement as compared to a scenario where such clauses are applied to individuals in their employment contract. 

WHAT ARE NON-COMPETE AND NON-SOLICITATION CLAUSES?

A non-compete clause is a legally binding document whereby an employee agrees not to enter employment with a rival company or start a business in a similar field, profession or trade for a specified period of time after leaving employment.

In the event an employee decides to work for the competition or start his/her own business, such an agreement can prevent employees from exploiting valuable and sensitive information such as trade secrets, client lists, marketing plans, proprietary technology and other confidential information.

On the other hand, non-solicitation clauses prevent former employees from soliciting away clients or other employees from the previous employer.

These clauses should always be applied to key employees in management as well as employees who come in frequent contact with sensitive and confidential information as part of their work. 

ARE RESTRAINT OF TRADE CLAUSES LEGALLY ENFORCEABLE IN SINGAPORE?

Under Singapore Law, restraint of trade clauses in are prima facie unenforceable unless the employer can show that the following elements are fulfilled:-

They protect a legitimate interest of the employer;

The Court of Appeal held that there cannot be a bare and blatant restriction of the freedom to trade and there must be a legitimate proprietary interest which the court will then seek to protect by way of the doctrine of restraint of trade. Client and trade connections are considered legitimate proprietary interest in that regard. Clauses that do not protect any legitimate proprietary interests but instead seek to restrain competition may not be enforceable.

The restrictions are reasonable in the interests of the parties and reasonable in the public interest.

To establish reasonableness, the court will first consider whether the restrictive covenants was reasonable between the parties themselves, next, the court would then turn to consider separately whether the restrictive covenant was reasonable in the interests of the public. In this regard, the court will ensure the impact of local circumstances are taken into account.

Non-compete clauses that covers all employees regardless of their seniority, nature of work or level of access to confidential information is considered unreasonable. Unlimited or unreasonably wide coverage on industry, geographical scope and time will also be considered unreasonable.

The burden is on the employer to show that the restraint of trade clause fulfils both elements.

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WHAT IF A RESTRAINT OF TRADE CLAUSE IS UNENFORCEABLE?

If the scope of the clause is too wide, the courts will either, strike down the non-enforceable parts of the clause or strike down the entire clause.

Under the doctrine of discretionary severance, the court may apply a “blue pencil test” to cancel out parts of the restraint of trade clause that are unreasonable. However, this can only be done if the remaining words still makes sense and retains their original meaning, further, this cannot be used to repair an unreasonable clause if there is nothing that can be cancelled out to make the clause reasonable.

WHAT CAN BE DONE IF THERE IS A BREACH IN A RESTRAINT OF TRADE CLAUSE?

If there is a breach of an enforceable restraint of trade clause, the employer can either claim damages from the former employee or apply for an injunction to stop further breach of the restraint of trade clause.

DRAFTING AN ENFORCEABLE RESTRAINT OF TRADE CLAUSES

Although a restraint of trade clause is prima facie unenforceable, a well-crafted clause can be enforced. Generally, a clause that can be enforced is one that is reasonable.

How We Can Help You

At Emerald Law we have lawyers who are experienced in handling employment related matters in Singapore. Contact Us today to schedule a free consultation where we can advise you on your situation and provide you with solutions.

Speak to a lawyer now

CONTACT US TODAY

Our specialised lawyers and their team are standing by to assist you. Our first consultation is free.

The information contained within this website contains general information about our lawyers, Law Firm and procedures and is not intended to constitute legal advice.
Any person viewing or receiving information from this Website should not act or refrain from acting, on the basis of any such information without first seeking appropriate legal advice.
Please consult a lawyer for specific review of your case and advise. 

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