Assoc Prof Jamus Jerome Lim: Non-compete clauses are included in many modern labour contracts and impose restrictions on a worker joining or otherwise doing business with a rival firm even after employment with the firm in question is over, usually for a specified period of time. Many companies sign non-competes in the name of protecting proprietary knowledge. In addition to the benefits to the employer, employees may also benefit, assured that its trade secrets are safe, the firm may be more willing to invest in their workers. Non-competes can also promote efficiency since companies are reassured that knowledge transfer within the firm do not come back to bite them after staff members depart.
But non-competes can have detrimental effects on worker rights and freedoms. After all, the contract literally constrains what an employee can do even after they are no longer employed. Evidence also suggests that it suppresses wages and can depress innovation.
In Singapore, many non-competes have been declared invalid or unenforceable, but restraints have nevertheless been imposed under certain circumstances. Yet regardless of the law, many non-competes have become ever more common in local labour contracts. Perhaps more perniciously, they are now increasingly found even in contracts for mid-level employees, not just top management, where the cost-benefit calculus in permitting such clauses are even more shaky. This was amply on display during the recent Lazada trade layoffs, where retrenched workers found themselves bound by a year-long non-compete, adding insult to the injury of losing their job. Given the effects of non-competes on the competition in the labour and product markets, policy-makers should not abrogate oversight of such clauses to the judicial system alone, but exercise an interest in its regulation.
The Government, under the tripartite framework, has indicated that it is developing a set of guidelines on the inclusion of non-compete clauses in local employment contracts. I would like to go a step further and urge the Ministry to consider either providing strong guidance against non-competes or even banning them outright, especially for mid-level and low-level employees. This could be defined by salary of, say, less than $10,000 a month and/or complemented by job scope for all non-C-suite executives. This applies especially to sectors where the frequent movement of employees is a matter of course, such as healthcare and infocomm technology (ICT).
The problem with non-competes is not just about whether or not they are legally enforceable. Indeed, in a recent case, e-commerce firm Shopee failed to prevent an employee from joining a rival firm despite the presence of non-compete clauses. It is instead the chilling fact that the mere presence of such clauses has on employees, especially mid-level ones that may be less familiar with human resource matters and labour protections when they seek to pursue other job opportunities. What may be worse is absent regulation or guidance. HR departments may simply include such boilerplate language in standard contracts. This inadvertently erodes employee rights and diminishes labour market vitality, regardless of whether they do or do not carry the day in court.
The Senior Minister of State for Manpower (Dr Koh Poh Koon): In the meantime, I would like to assure members, such as Mr Louis Chua and Assoc Prof Jamus Lim, that the Government will continue to work closely with our tripartite partners to ensure that exploitative employment practices do not become the norm in our workplaces.
To Assoc Prof Jamus Lim’s suggestion to legislate against restraint of trade clauses for employees who are of a certain pay grade, theoretically, this sounds like an easy thing to do. But in practice, the specific types of jobs that interact substantively with an employer’s legitimate business interests will depend on each employer’s business considerations and structures as well as other case-specific factors, such as the nature of work that the employee is engaged in at that time and the position of the employee within the organisation. It will not be appropriate nor feasible for tripartite partners to take a one-size-fits-all approach and prescribe exhaustively the specific circumstances in which restraint of trade clauses are reasonable. Employers should assess if there is a genuine need for restraint of trade clauses to protect legitimate business interests based on principles that the Courts have already previously set out.
Assoc Prof Jamus Jerome Lim: One for Senior Minister of State Koh. I appreciate that there are practical considerations that lead to the need for flexibility, whether non-compete clauses should be allowed for mid-level employees. But surely, he would agree with me that the default should be that these clauses do not apply. After all, the Government routinely imposes hard thresholds for all manners of policies and relaxes them through an appeals system. It strikes me as much more efficient and consistent with worker rights if these were discouraged by default with special cases allowed into tailored employment contracts.
Dr Koh Poh Koon: Sir, to answer Assoc Prof Jamus Lim’s question we need to understand that there is no default job description in any job. So, there is no way to have a default restriction against restriction of trade clauses for a particular job. Unless there is a standard job that is available for which we know what a worker does from one company to the next, it is very hard to prescribe in law what the default position is, which is why the Court takes a case-by-case approach, but lays out principles in which why some of these clauses are non-enforceable. And that is why it is so difficult to have a one-size-fits-all approach. The job title of a clerk in one company can mean one thing in one company and mean another thing in another company. So, it is very hard for us, a priori, to determine what is the default baseline for a job requirement.
Ministry of Manpower
4 March 2024
https://sprs.parl.gov.sg/search/#/sprs3topic?reportid=budget-2369
Office of the Leader of the Opposition 