Introduction

Non-compete clauses in employment contracts, which commonly restrict employees from working for a competitor in the same industry after leaving their job, garnered attention on 1^st February 2024 when Shopee lost a lawsuit against a former senior employee now employed by rival ByteDance, which operates TikTok and TikTok Shop. The case prompted discussions online about the fairness and enforceability of such clauses in Singapore.

NOTE:

The summary below does not represent the full grounds of the decision and does not reflect all the facts, issues, factors, legal points considered by the Court in arriving at the decision. To read the full Judgment, please refer to Shopee Singapore Private Limited v Lim Teck Yong [2024] SGHC 29

Background Facts

Shopee initiated legal proceedings, claiming that Lim Teck Yong’s (“Lim”) transition to ByteDance constituted a breach of a non-compete clause stipulated in his employment contract.[1]

Lim, who dedicated eight years to Shopee and held significant roles such as Head of Regional Operations, HQ and Executive Director, Head of Operations for Shopee Brazil, resigned in August 2023.[2] Subsequently, he joined ByteDance in September 2023, taking on the role of a leader overseeing TikTok shop governance and experience.[3]

Shopee contended that Lim had violated a non-compete clause, which prohibited him from engaging with a competitor within 12 months of departing the company. The company sought interim injunctions to prevent Lim from working at ByteDance and from soliciting Shopee’s clients and employees.[4]

Shopee claimed that Lim’s role in ByteDance is “substantially similar” to the roles he undertook in Shopee, as Lim continues, in his role in ByteDance, to:

(a) manage user experience, such as customer satisfaction;

(b) manage the designing of policies relating to seller and listing management;

(c) manage the publishing of external-facing policies of TikTok Shop to sellers and creators;

(d) manage after-sale services such as return and refund; and

(e) manage and hold responsibilities in respect of the Southeast Asia market.[5]

Contrary to Shopee’s contention, Lim maintained that his new role primarily focused on supportive tasks, such as data analysis and root cause analysis to enhance operational metrics.[6] Lim’s position is that the scope of his work in ByteDance is different from that of his last role as Executive Director, Head of Operations for Shopee Brazil, which was geographically limited to Brazil, in which TikTok Shop does not presently operate.[7]

High Court’s decision

Justice Kwek Mean Luck dismissed Shopee’s requests, stating that the company failed to present a “serious question” to be tried.[8] Justice Kwek further mentioned that even if such questions existed, he would not have granted the requested injunctions.[9]

Justice Kwek also expressed doubts about the validity of Shopee’s non-competition restriction, questioning the presence of a legitimate proprietary interest and the reasonableness of the geographical restraint.[10] Justice Kwek held that Shopee does not have any specific evidence that Lim has breached the Non-Solicitation Restrictions and consequently rejected the springboard injunction request.[11] As stated by Justice Kwek in his Judgment, it could not be said in the circumstances that there is evidence of a risk of Lim misusing confidential information.[12] Lim has already entered into an Employee Confidentiality Agreement with Shopee. The additional undertakings requested for does not add anything legally. Lim has also stated in affidavit that he has not breached and will not breach his confidentiality obligations.[13]

Justice Kwek further justified his decision to deny the requested interim injunction by pointing out that the status quo is that Lim has already started work for ByteDance. This would be disturbed if the interim injunction is granted. Given the serious doubts over the possibility of Shopee’s eventual success, Justice Kwek held that it would be in the interests of justice not to disturb that status quo.[14]

Key takeaways

(A) For Employers

Non-compete clauses are often more common in industries where employees work within markets dominated by a few influential firms, each holding a significant market share. Additionally, these clauses are prevalent in sectors characterized by high levels of innovation, as well as in industries where major players are known rivals or have a history of poaching each other’s key employees. This recent case illustrates the intricate challenges that employers encounter when endeavouring to enforce restrictive covenants, especially non-compete clauses, against former employees.

Some companies incorporate the non-compete clause into standardised employment contracts for all positions. However, employers should incorporate such clauses into employment contracts only when there exists a genuine necessity to shield legitimate business interests. Non-compete clauses should not be utilised as a tool to gain an unfair advantage or unduly restrict an employee’s future professional endeavours. These clauses must adhere to principles of reasonableness in terms of scope, geographical area, and duration, and should not extend beyond what is reasonably required to protect the employer’s interests. While there might not be rigid guidelines on the specific duration of the non-compete period, the emphasis on reasonableness remains paramount. A non-compete period that is too long may be seen as unfair.

Singapore courts, acknowledging the potential for abuse, will carefully scrutinise such clauses with meticulous attention. Therefore, careful drafting of these clauses, coupled with seeking legal advice, becomes imperative for employers seeking enforceability without compromising fairness. The key to drafting a strong non-compete clause is making it specific to fit the unique characteristics of the employee and the industry, sector, and location of the employer. Regularly reviewing non-compete clauses is also crucial to guarantee their compatibility with the ever-changing landscape of the employer’s business. This ongoing assessment will enable employers to incorporate any relevant developments, ensuring that the clauses stay pertinent and legally robust.

Further, employers are advised to engage in transparent communication with employees regarding the reasoning behind incorporating non-compete clauses into employment contracts. By offering clear explanations regarding the purpose, scope, and duration of such clauses, it can foster mutual understanding between employers and employees and mitigate potential disputes in the future.

By navigating these considerations, employers can strike a balance that protects their legitimate interests while respecting the rights and opportunities of their former employees.

(B) For Employees

Employees who believe that they have been subject to unreasonable employment clauses may seek assistance from their unions, the Tripartite Alliance for Fair and Progressive Employment Practices (TAFEP), or the Ministry of Manpower (MOM). However, even before entering negotiations and signing an employment contract, employees should meticulously review the terms and assess the potential impact of the non-compete clause on their future job prospects. Employees should seek clarification from the employer regarding any ambiguous language or terms in the non-compete clause. Excessively stringent restraint of trade clauses can put employees at a disadvantage and impede their ability to secure new employment opportunities, especially the retrenched employees.

Employees can proactively take steps to navigate non-compete clauses in their employment contracts. One strategy involves negotiating with the employer to exclude the non-compete clause, especially if the likelihood of encountering trade secrets or client connections is minimal. Additionally, employees can engage in discussions to refine the duration and scope of the clause, potentially restricting it to the same role within a competitor company.  Employees may also consider proposing alternative arrangements to the employer, such as a confidentiality agreement or a non-solicitation agreement, which may still protect the employer’s legitimate interests without imposing undue restrictions on their career. Employees may seek legal advice to ensure that employment contracts achieve a fair balance between the employer’s interests and the protection of the employee’s rights.

Employees should diligently review the terms irrespective of their position within the company. Dismissing the potential impact based on job position might be premature, as these terms are integral to the employment contract. In practice, if the clause is reasonably constructed, the company has the option to enforce it in case of a breach.

Furthermore, employees should stay informed about developments in employment law and keep abreast of any changes in regulations related to non-compete clauses. This proactive approach enables employees to assert their rights effectively and advocate for fair treatment in the workplace.

If you believe your employment clause is unreasonable or unenforceable, you may consult legal advice to explore potential defenses.

Recent Development

Singapore plans to unveil tripartite guidelines addressing non-compete clauses in the latter part of 2024, as announced by Manpower Minister Tan See Leng on 6 February 2024. He noted, “These guidelines are currently being finalised and are targeted for release in the second half of this year.” [https://www.mom.gov.sg/newsroom/parliament-questions-and-replies/2024/0205-written-answer-to-pq-on-regulating-non-compete-clauses-in-employment-contracts]. The minister further highlighted the ongoing development of these guidelines, emphasizing their role in educating employers and influencing industry norms.

In light of this, it is crucial for companies and individuals to meticulously scrutinise the forthcoming guidelines. These guidelines will be in addition to the existing Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment, and the Tripartite Guidelines on Mandatory Retrenchment Notifications. Keeping abreast of legal developments will ensure that both employers and employees are equipped with the knowledge needed to navigate and protect their respective interests within the evolving landscape of employment regulations.

[1] Judgment, [1], [2], and [13]

[2] Judgment, [1]

[3] Judgment, [1]

[4] Judgment, [2]

[5] Judgment, [6]

[6] Judgment, [7]

[7] Judgment, [7]

[8] Judgment, [71], [82]

[9] Judgment, [93]

[10] Judgment, [82]

[11] Judgment, [77] – [81]

[12] Judgment, [81]

[13] Judgment, [81]

[14] Judgment, [92]