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Read This Before You Sign: The 'Non-Compete Clause' And What It Means

When signing a contract for a new job, how often do we pore through every single clause to ensure that we understand and agree to be subjected to all the terms listed by the employer?

More often than not, many tend to put their pen to the paper after only checking the more immediate ‘essentials’ – leave days, benefits, and salary.

But what about other actually essential terms, like non-compete clauses?

As a quick overview, non-compete clauses come under a larger umbrella of ‘restraint of trade’ clauses, which also include non-solicitation clauses, and confidentiality clauses.

The first time I encountered a non-compete clause was at the start of my career.

Unsure of what it entailed, I asked the HR manager if that meant that I couldn’t work in the same industry if I were to leave the job.

She brushed off my query, stating that it just meant that I won’t be able to work for the firm’s clients if they wanted to poach me.

Not wanting to press any further in case I jeopardise our budding professional relationship (“What if she tells the boss that I was being difficult?”), I signed the contract with no more questions asked.

Later, I found out that non-compete clauses are only enforceable if they are 1. protecting a ‘legitimate proprietary interest’ of the employer’; 2. reasonable in scope.

In simpler terms, a ‘legitimate proprietary interest’ can refer to advantages or assets that can be regarded as the employer’s property.

According to Singapore Legal Advice, the Singapore court recognises client and trade connections as legitimate proprietary interest too.

These assets, however, “should not be the skill or know-how that the employee acquires as part of his job during his employment”.

How ‘reasonable’ the scope of a non-compete clause is determined by several factors: 1. scope of employees (rank and seniority-wise) restrained; 2. scope of activity restrained; 3. duration of restraint; 4. geographical scope of restraint.

In the case when non-compete clauses are found to be ‘unenforceable’ and/or unreasonable, the Court can choose to 1. ‘cancel out’ parts of the clause that are deemed unreasonable; 2. strike down the entire clause from the contract.

On the flipside, an employer can apply for an injunction, or claim damages from an employee if a breach is found.

Kubaren Algasamy, an Industrial Relations Officer (IRO) in the Union of Security Employees (USE) has come forward with a case involving the non-compete clause that left him “disheartened”.

Here are the key points of his account.

“I Expected The Case To Be Thrown Out On The Basis That It Was Unenforceable”

In his course of work as an IRO, Kubaren helps to resolve “a wide spectrum of grievances” that security officers face, from salary claims to unfair terminations and dismissals.

This time, he was faced with a case that involved three union members that were sued by their former employer to enforce a restraint of trade clause.

He shared that the security industry is “largely outsourced”, and therefore often sees security service providers being changed once every few years.

In this case, the affected security officers had been working for Company A at a worksite for four years before the firm lost the contract to Company B.

“Wanting to remain at the same site due to their familiarity of work, these three security officers, along with several colleagues at the same site, resigned from Company A, served out the contractual notice period, and switched employment to Company B.”

Kubaren added that this practice is “fairly common” in the security industry.

Company A then sought an injunction against these 3 officers to prevent them from working at the site on the basis that they had “breached the restraint of trade clause in their employment contracts […] and that this was damaging to Company A”.

Stepping in immediately to assist the officers, Kubaren worked with them to establish the chronology of events, and worked with Company B’s management to provide legal support for their new employees.

The court session was scheduled just eight days from the day the officers were served the court documents.

To ensure they were prepared and fully understood the situation, Kubaren also met up with the officers thrice prior to the court session.

“But I am no lawyer, and unfortunately, legal support from their new employer did not arrive swiftly enough, resulting in the three officers facing Company A’s lawyer in court.”

The case was heard in the civil registry in a case management conference setting, and the outcome was a consent order where the workers agreed to pay damages to Company A.

While Company B managed to retain a lawyer later on, attempts to appeal against the outcome were unsuccessful.

“Disheartened” at the outcome, Kubaren shared that based on his research and references to existing cases, “restraint of trade clauses are […] deemed to be unenforceable from the outset unless they can be justified to be reasonable in the interests of the parties or of the public”.

He added that for the employer’s legitimate proprietary interest to be proven, employees involved need to belong to senior management level, bring business in for the company, make decisions, or have access to confidential information.

“Considering the security officers affected were rank-and-file employees, I believe it was unlikely that Company A could validate any of the above and therefore had no case. I expected the case to be thrown out on the basis that it was unenforceable,” he argued.

“What transpired, sadly, was different.”

Kubaren shared that he was disheartened that the officers needed to foot for the damages because they had duly served their notice.

He added it was “clear” that Company A was unhappy with losing its contract.

But to take it out on low wage workers, and for the workers to come out bearing the brunt of this is unfair.

He ended off his account stating that the union have provided support to workers while they were redeployed to another worksite by Company B, and also checked in with them regularly.

“I know that wasn’t enough, but we tried our best. I tried my best.”

“Earning an honest day’s wages for an honest day’s work while tackling each day is challenge enough. To have to worry about switching employers and getting sued, would be yet another onerous one.”

What Should We Know About Restraint Of Trade As Employees?

Due to the multitude of factors that need to be taken into account in cases of a potential breach of contract, there’s no one-size-fits-all scenario and solution when it comes to what’s enforceable/reasonable when it comes to non-compete clauses.

Regardless of whether or not you’ll be caught in a pickle as such in the future, it’s still important to be aware of restraint of trade clauses that affect you as an employee.

You can check out this article by Singapore Legal Advice for further reading.

What do you think about non-compete clauses, and what were your experiences with them so far? Let us know!

 

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