WHAT IS A NON-COMPETE CLAUSE?
Non-compete clauses were first developed as a way for employers to safeguard against nefarious employees who might, if given the opportunity, attempt to misappropriate confidential know-how or trade connections when they decamp to a competitor, which can be severely detrimental to the employer.
Against this backdrop, non-compete clauses were never intended to penalise by stymieing an employee’s prospects or livelihood; they were instead meant to be a prophylaxis against corporate subterfuge, and to prevent one’s trade rivals from gaining an unfair competitive advantage.
In recent years, however, the use of non-compete clauses has proliferated – particularly in places such as the United States.
Non-compete clauses have the effect of preventing an employee from working in the same industry for a given period of time.
In Singapore, this could range from anywhere between three months to two years, and have been enforced against persons across a myriad of occupations ranging from dentists to florists. By and large, the industries where such clauses are most frequently used are financial services and tech, owing to the highly sensitive nature of the work and the importance of cultivating strong trade connections.
That being said, it is increasingly common to find employers including them in employment contracts, in some cases without actually having considered the need for such clauses, just because everyone else is doing so.
In other instances, employers are deliberately inserting them into employment contracts as a deterrent, to dissuade employees from leaving to join a competitor. The employer’s oversized bargaining power means that employees are often left with no choice but to accept these terms.
It is little wonder, then, that the FTC’s proposal has galvanised various interest groups within the US and provoked a range of responses. The US Chamber of Commerce has decried the proposal as “blatantly unlawful”. The Society for Human Resource Management has urged the FTC to adopt a more nuanced approach that distinguishes between clauses that restrict market mobility (bad) and those that protect confidential information (good).
The public, who are by and large rank-and-file workers, have generally been supportive of the proposal.
While it is tempting to look at the FTC’s proposal as a barometer of the way things ought to be in a free market economy, one should not read too much into such a development. There are fundamental differences in approach taken by the Singapore and US courts to non-compete clauses, which lead to differing outcomes for employees at the receiving end of such restraints in each country.