When are they valid and what are the criteria?
Post-employment restraints – or restrictive covenants – must be carefully drafted and must meet numerous criteria in order to be legally enforceable.
“The post-employment restraint must protect a legitimate proprietary interest of the company and it cannot simply be a protection against competition from its former employee,” Shaun Lee, supervising associate at JWS Asia Law Corporation, told HRD.
“Legitimate proprietary interests would include things like confidential information, trade secrets, client and customer connections and the maintenance of a stable, trained personnel force. But it can’t be basically a bare non-compete.”
Assuming that there is a legitimate proprietary interest for the employer to protect, the courts will then test the restrictive covenant for reasonableness. The basic position of the law is that the employer must prove that the restraint is reasonable for it to be upheld.
What this means in terms of drafting, Lee explained, is drafting with the basic principles in mind: you need to be reasonable in terms of the duration of the restraint, but also in terms of geographical location – for example, if an employee worked in and dealt only with customers in Singapore, it would be very difficult to justify a global non-compete or non-solicitation clause on customers globally.
Another important factor, Lee said, is that when the courts assess the reasonableness of the contract, it will be judged based on when the restraint was signed.
“If you have a long-term employee [that] has risen through the ranks, and you haven’t taken the opportunity to sign a new contract or to refresh the contract or those covenants, then the Singapore courts will look at the reasonableness of the restrictive covenant at the time when he or she signed that contract.”
Lee suggested refreshing restraints each time an employee is promoted: “At that stage, HR should also consider whether or not those restrictive covenants are appropriate for the employee’s standing.”
Another relevant legal test to consider, he added, is the ‘Blue Pencil’ test for severance of clauses.
‘Blue Pencil’ is a legal doctrine of severance which means the courts can nullify parts of a contract but uphold others. The courts could apply the ‘Blue Pencil’ test to strike out offending parts of a restrictive covenant and thereby uphold the remaining parts of the clause without having to void the entire covenant. However, the test would only be applied if after deleting the offending portions, the restrictive covenant still makes grammatical sense.
‘Cascading clauses’ are an attempt to draft a restrictive covenant with the ‘Blue Pencil’ test in mind. The covenant will contain multiple sub-clauses, each with different restrictions regarding time and geographical coverage. The idea is that the courts are able to strike out those deemed unreasonable and just preserve those deemed enforceable. However, this approach has been doubted by the courts meaning it may be best to keep contracts simple.
Ultimately, Lee said, each case will be judged on its own facts.
“Those facts basically relate to the proprietary interest to be protected, the seniority of the employee, the kind of work that they were engaged in, the amount of confidential information they are privy to, the amount of contact they have with clients.”
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“The post-employment restraint must protect a legitimate proprietary interest of the company and it cannot simply be a protection against competition from its former employee,” Shaun Lee, supervising associate at JWS Asia Law Corporation, told HRD.
“Legitimate proprietary interests would include things like confidential information, trade secrets, client and customer connections and the maintenance of a stable, trained personnel force. But it can’t be basically a bare non-compete.”
Assuming that there is a legitimate proprietary interest for the employer to protect, the courts will then test the restrictive covenant for reasonableness. The basic position of the law is that the employer must prove that the restraint is reasonable for it to be upheld.
What this means in terms of drafting, Lee explained, is drafting with the basic principles in mind: you need to be reasonable in terms of the duration of the restraint, but also in terms of geographical location – for example, if an employee worked in and dealt only with customers in Singapore, it would be very difficult to justify a global non-compete or non-solicitation clause on customers globally.
Another important factor, Lee said, is that when the courts assess the reasonableness of the contract, it will be judged based on when the restraint was signed.
“If you have a long-term employee [that] has risen through the ranks, and you haven’t taken the opportunity to sign a new contract or to refresh the contract or those covenants, then the Singapore courts will look at the reasonableness of the restrictive covenant at the time when he or she signed that contract.”
Lee suggested refreshing restraints each time an employee is promoted: “At that stage, HR should also consider whether or not those restrictive covenants are appropriate for the employee’s standing.”
Another relevant legal test to consider, he added, is the ‘Blue Pencil’ test for severance of clauses.
‘Blue Pencil’ is a legal doctrine of severance which means the courts can nullify parts of a contract but uphold others. The courts could apply the ‘Blue Pencil’ test to strike out offending parts of a restrictive covenant and thereby uphold the remaining parts of the clause without having to void the entire covenant. However, the test would only be applied if after deleting the offending portions, the restrictive covenant still makes grammatical sense.
‘Cascading clauses’ are an attempt to draft a restrictive covenant with the ‘Blue Pencil’ test in mind. The covenant will contain multiple sub-clauses, each with different restrictions regarding time and geographical coverage. The idea is that the courts are able to strike out those deemed unreasonable and just preserve those deemed enforceable. However, this approach has been doubted by the courts meaning it may be best to keep contracts simple.
Ultimately, Lee said, each case will be judged on its own facts.
“Those facts basically relate to the proprietary interest to be protected, the seniority of the employee, the kind of work that they were engaged in, the amount of confidential information they are privy to, the amount of contact they have with clients.”
Related stories:
Do employment contracts have to be witnessed?
When can you legally give someone a pay cut?
Can overpaid wages be recovered?
