For any business, certain information and relationships are the lifeblood of commercial success: client lists, trade secrets, pricing strategies, and a skilled, stable team. When an employee leaves to join a competitor, or worse, to compete directly, these assets can suddenly feel vulnerable. This is where restrictive covenants come in. Yet despite their widespread use, restrictive covenants remain one of the more misunderstood areas of employment law.
What Is a Restrictive Covenant?
A restrictive covenant is a contractual clause that limits what an employee can do during their employment or after it ends. These clauses typically fall into several categories:
- non-competition covenants (restricting an employee from working for a competitor),
- non-solicitation covenants (preventing the poaching of clients or customers),
- non-dealing covenants (preventing any dealings with former clients, regardless of who initiates contact), and
- non-poaching covenants (preventing the recruitment of former colleagues).
Confidentiality or non-disclosure clauses often work alongside these to protect sensitive business information.
These clauses are common in the employment contracts of senior or highly skilled staff, put in place from the outset of employment to deter employees from joining competitors and to warn off potential new employers.
The Default Position: Void Unless Justified
It may surprise many employers to learn that the starting point in Singapore law is that restrictive covenants are presumed void. This reflects a longstanding principle in English and Singapore common law that all restraints of trade are, on their face, contrary to public policy — a principle traced back to the 1894 English case of Thorsten Nordenfelt v The Maxim Nordenfelt Guns and Ammunition Company, Limited [1894] AC 535.
This means an employer cannot simply insert a broad non-compete clause and expect the courts to enforce it. The employer bears the burden of showing the clause is justified.
The Two-Stage Test for Enforceability
Singapore courts apply a well-established two-stage test, set out by the Court of Appeal in Man Financial (S) Pte Ltd v Wong Bark Chuan David [2008] 1 SLR(R) 663:
Stage 1 – Legitimate Proprietary Interest. The covenant must protect a genuine business interest, not simply stifle competition. Recognised legitimate interests include trade secrets or confidential information, trade connections (client and customer relationships), and the maintenance of a stable, trained workforce.
Stage 2 – Reasonableness. Even where a legitimate interest exists, the restriction must be no wider than reasonably necessary, and reasonable both as between the parties and in the public interest. Reasonableness is typically assessed across three dimensions: the scope of restricted activities, the geographical extent of the restriction, and its duration.
Recent cases have added an important refinement: the “close connection” test. Courts in cases like HT SRL v Wee Shuo Woon [2019] 5 SLR 245 and MoneySmart Singapore Pte Ltd v Artem Musienko [2024] SGHC 94 have confirmed that both the activity and geographical scope of a restriction must bear a close connection to the actual work the employee performed before leaving. A blanket restriction covering markets or activities the employee had no real involvement in is unlikely to survive scrutiny.
Lessons from Recent Singapore Cases
Two recent High Court decisions, Shopee Singapore Pte Ltd v Lim Teck Yong [2024] SGHC 29 and MoneySmart Singapore Pte Ltd v Artem Musienko, offer valuable cautionary tales for employers. In both cases, employers failed to enforce non-competition clauses against departing employees.
A recurring theme is the so-called Stratech principle (from Stratech Systems Ltd v Nyam Chiu Shin [2005] 2 SLR(R) 579): where a confidentiality clause already protects an employer's confidential information, the employer generally cannot rely on that same interest to justify a separate non-compete clause. The non-compete must protect something over and above what is already covered elsewhere in the contract. Similarly, where a non-solicitation clause already protects customer connections or workforce stability, a broader non-compete covering the same ground may be struck down as redundant and therefore unenforceable.
The courts have also rejected employer attempts to rely on vague or generic assertions. In Shopee, the employer's claimed “trade secrets” were dismissed as “fairly generic categories” rather than genuine confidential information. Likewise, in MoneySmart, the court refused to accept a bare assertion that the industry was “small and consolidated” without concrete evidence.
Employers should also be wary of so-called cascading clauses - provisions offering multiple fallback durations (for example, 15 months, or failing that 13 months, or failing that 12 months) in the hope a court will enforce at least one. The MoneySmart decision confirmed such clauses are disfavoured, as they create uncertainty for employees and may be seen as an abusive drafting tactic rather than a genuine attempt at reasonableness.
Injunctions and Practical Enforcement
Where a breach is suspected, employers often seek urgent injunctions to restrain the departing employee. However, courts will not grant such relief lightly. An employer must first show a serious question as to the validity of the restrictive covenant itself before any injunction can follow. Mere refusal by an employee to provide undertakings, without further evidence of an actual or threatened breach, is unlikely to justify urgent intervention.
Practical Takeaways
For employers, the message is clear: restrictive covenants must be carefully drafted, tied specifically to the employee's actual role and access to sensitive information, and supported by concrete evidence rather than generic assertions. For employees, understanding these principles can help in negotiating fairer terms and recognising when a clause may be challengeable.
Given the fact-specific and evolving nature of this area, businesses and employees considering restrictive covenants, whether drafting, relying on, or challenging one, should seek tailored legal advice before taking action.