Inclusion of Restraint of Trade Clauses in Labour Contracts for Non-top Management Positions

Assoc Prof Jamus Jerome Lim asked the Minister for Manpower (a) whether the Ministry monitors the inclusion of restraint of trade clauses in labour contracts, especially for middle-management and low-wage positions; and (b) whether the Ministry condones the inclusion of such clauses for non-top management positions.

The tripartite partners' position is that employers should only include restraint of trade clauses in their employees' employment contracts if there is a genuine need for such clauses to protect legitimate business interests. Restraint of trade clauses must be reasonable – they must balance employers' needs to protect their businesses and employees' ability to earn a living. The Courts have set out clear principles on when such clauses are unreasonable and not enforceable.

Employers should generally avoid including restraint of trade clauses in the employment contracts for lower-paying jobs. This is because employees in lower-paying jobs are unlikely to have access to information that would significantly harm their current employer's interest. Restraint of trade clauses are also likely to have a greater impact on the livelihoods of these employees.

Higher-paying jobs, such as middle-management jobs, are more likely to interact substantively with employers' legitimate business interests due to the nature of the work and position in the organisation. There could be more occasions where employers may have reason to include restraint of trade clauses in the employment contracts of employees in these jobs to protect their legitimate business interests, compared to lower-paying jobs.

Tripartite partners are committed to ensuring that unreasonable contractual clauses do not become the norm in our workplaces. Employees who believe that they have been subject to an unreasonable employment clause in their employment contracts may approach their unions, the Tripartite Alliance for Fair and Progressive Employment Practices (TAFEP) or the Ministry of Manpower (MOM) for assistance. Over the past few years, TAFEP has received around 20 cases of unreasonable contractual clauses each year. When engaged by MOM and TAFEP, employers have generally been cooperative in removing or not enforcing such clauses.

MOM and tripartite partners are currently developing a set of tripartite guidelines to shape norms and provide employers with further guidance on the inclusion of restrictive clauses in employment contracts. Details will be made available in due course.