Restrictive Covenants in Employment Contracts: What Singapore Employers and Employees Need to Know

By Clarence Tan

Post-employment restrictive covenants are one of the most frequently misunderstood features of employment contracts in Singapore. Employers include them as standard protective measures; employees sign them without fully appreciating their scope; and both sides often discover the practical consequences only when a departure is imminent. The Singapore courts have in recent years clarified the law in ways that materially affect how these clauses should be drafted and assessed — and the Ministry of Manpower’s ongoing work on tripartite guidelines signals that this is an area of continued regulatory focus. Whether you are drafting an employment contract, advising a departing employee, or reviewing your own post-employment obligations, understanding the current position is useful.

1. The Starting Point: Restraints of Trade Are Presumptively Void

(a) Under Singapore law, post-employment restrictive covenants are prima facie void and unenforceable as unlawful restraints of trade. The burden of justification falls entirely on the employer. To discharge that burden, the employer must satisfy the two-stage test established by the Court of Appeal in Man Financial (S) Pte Ltd v Wong Bark Chuan David [2008] 1 SLR(R) 663: first, that the covenant protects a legitimate proprietary interest of the employer; and second, that it is reasonable as between the parties and in the public interest, having regard to its scope of activity, geographic reach, and duration. The recognised categories of legitimate proprietary interest are the protection of trade secrets and confidential information, the protection of trade connections, and the maintenance of a stable and trained workforce.

(b) The Man Financial framework was further developed by the Court of Appeal in Smile Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart [2012] 4 SLR 308, which remains a leading authority on how the “legitimate proprietary interest” limb is assessed and on the analytical ordering of the two-stage test. The basic principles have been applied consistently for well over a decade. What has shifted in recent years is the courts’ rigour in examining whether employers can genuinely satisfy both limbs — particularly the first.

(c) A related common-law principle deserves brief mention. Where an employer itself acts in repudiatory breach of the employment contract — for example, by terminating without proper notice or payment in lieu where the contract requires it — the employee is ordinarily released from post-termination restrictions altogether. Procedural and contractual compliance at the point of termination is therefore a relevant, and in some cases decisive, factor in whether an otherwise well-drafted restriction remains enforceable.

2. What the 2024 High Court Decisions Changed

(a) Two decisions of the General Division of the Singapore High Court in early 2024 have meaningfully developed the law on non-compete clauses in employment contracts. In Shopee Singapore Pte Ltd v Lim Teck Yong [2024] SGHC 29 and MoneySmart Singapore Pte Ltd v Artem Musienko [2024] SGHC 94, the court held that where an employment contract already contains a standalone confidentiality clause, a non-competition clause must protect a legitimate proprietary interest that is meaningfully distinct from and broader than the protection already provided by that confidentiality clause.

(b) The principle is not that the mere presence of a confidentiality clause automatically defeats a non-compete. The question is whether the employer can articulate a genuine proprietary interest — such as the protection of trade connections or the stability of a trained workforce — that the non-compete protects over and above what the confidentiality clause already covers. A non-compete that does no more than duplicate existing confidentiality protection is vulnerable to being struck down. Similarly, where a non-solicitation clause already protects trade connections, an employer seeking to rely on the same interest to justify the non-compete may find that argument declined.

(c) Shopee also contains a useful observation on geographic scope. The non-competition restriction extended to all markets in which the employer operated, rather than those in which the employee had been genuinely active. The court expressed doubt that a restriction of such breadth could be considered reasonable either between the parties or in the public interest. This reinforces the broader point that geographic and temporal scope should be calibrated to the employee’s actual role and exposure, rather than adopted as a uniform template.

3. Where the Restrictions Sit: Standalone vs Integrated Drafting

(a) Restrictive covenants in Singapore employment practice are frequently contained in a standalone agreement — commonly titled a restrictive covenants agreement, non-compete agreement, or similar — rather than embedded within the main employment contract. Confidentiality obligations are often housed in a further separate non-disclosure or employee confidentiality agreement. This architectural choice is typically treated as a matter of administrative convenience, and it remains common practice, particularly for senior hires and in regulated sectors. The 2024 High Court decisions are a useful prompt to revisit whether the choice has been a deliberate one.

(b) In Shopee, the restrictive covenants and the confidentiality obligations sat in two separate instruments signed at the outset of employment. When the court applied the “over and above” test, it was effectively comparing two separately-drafted documents side by side, and the overlap between the interests they sought to protect was readily apparent on the face of the drafting. An integrated employment contract does not avoid the same analytical exercise, but it gives the drafter more scope to articulate an internally coherent protective scheme in which each restriction is seen to do distinct work. Standalone structures, by contrast, tend to invite a more literal comparison between documents and place a heavier burden on each agreement to justify its own existence on a proprietary-interest basis.

(c) Standalone agreements also raise a consideration issue that does not typically arise in integrated drafting. Where a separate restrictive covenants agreement is presented for signature after the employment has commenced — for example, on promotion, in connection with a bonus or equity award, or when the employee is given access to new categories of confidential information — there should be identifiable fresh consideration to support the additional restrictions. A unilateral request to sign a new agreement without any corresponding benefit to the employee may be vulnerable on ordinary contractual principles, independently of any restraint-of-trade analysis.

(d) A related consideration is the timing and manner in which standalone agreements are presented. An employee asked to sign a separate restrictive covenants agreement at the point of onboarding, alongside a stack of other documents and before starting work, may have had limited opportunity to seek independent advice. Where the restrictions are substantial, parties may find it useful to flag the agreement for separate attention — both to improve the prospect of informed consent and to support the reasonableness analysis if the restrictions are later challenged.

4. The Four Principal Types of Post-Employment Covenant

Non-Competition Clauses

(a) A non-competition clause prohibits a departing employee from working in a competing business for a defined period and within a defined geographic area. It is the most commercially significant restriction and the one most frequently contested. Following Shopee and MoneySmart, employers relying on a non-compete that sits alongside a confidentiality clause will need to identify clearly what legitimate proprietary interest the non-compete protects beyond the confidentiality obligation. Common interests recognised by the courts include the protection of trade connections built through the employee’s client-facing role, and the protection of employer-specific training and specialised skills that cannot adequately be addressed by confidentiality alone.

(b) Geographic and temporal scope remain critical. Courts have been willing to find territorial restrictions unreasonable where they extend to jurisdictions in which the employee had no actual duties or client relationships. Drafters may wish to consider tailoring the geographic scope to the markets in which the employee was genuinely active, rather than including broad regional coverage as a matter of form.

Non-Solicitation of Clients

(c) A non-solicitation clause prohibits a departing employee from soliciting or interfering with the employer’s client relationships. This type of restriction is generally considered to have a more defined and proportionate scope than a full non-compete, because it is tethered to specific client relationships rather than an entire industry or market. As noted in Shopee, a non-solicitation clause is most defensible where it is limited to clients with whom the employee had genuine personal involvement and influence during the course of employment.

(d) A drafting point that deserves particular attention is the extension of non-solicitation obligations to “prospective clients” — defined, for example, as those who have received or requested a proposal from the employer. This extension may attract closer judicial scrutiny, particularly where the employee had no personal dealings with those prospective clients.

Non-Poaching of Employees

(e) Non-poaching covenants prohibit departing employees from inducing or encouraging colleagues to leave the employer. The Singapore courts have recognised that an employer may have a legitimate proprietary interest in maintaining a stable and trained workforce — a principle affirmed by the High Court in PH Hydraulics & Engineering Pte Ltd v Intrepid Offshore Construction Pte Ltd [2012] 4 SLR 36 and considered in subsequent authorities. Non-poaching clauses are less frequently challenged than non-competes, provided they are confined to active inducement and do not extend to receiving unsolicited approaches from former colleagues.

Non-Disparagement

(f) Non-disparagement obligations prohibit departing employees from making disparaging statements about the employer, its affiliates, or its management for a specified period. These provisions are less controversial than competition restrictions and are ordinarily considered enforceable as a matter of ordinary contractual obligation, though their scope and duration should still be proportionate.

5. Garden Leave as an Alternative or Complement

(a) A garden leave clause permits the employer to require an employee who has given or received notice of termination to remain away from the workplace during all or part of the notice period, while continuing to be paid in full. The employee remains employed — and therefore bound by duties of fidelity and confidentiality — but is excluded from active work, client contact, and access to confidential information.

(b) Garden leave has become an increasingly common feature of senior employment contracts, particularly where a straightforward non-compete may be difficult to defend. The employee continues to be paid, which avoids the reasonableness concerns that attach to an unpaid post-employment restriction. The restriction operates during employment rather than after it, which places it on firmer contractual footing. And the period of exclusion naturally erodes the currency of client contacts and confidential information the employee might otherwise seek to exploit on departure.

(c) Garden leave is not a universal substitute for a post-employment non-compete. A lengthy notice period paired with garden leave may itself be treated as a restraint of trade if its effect is to unreasonably prevent the employee from working. Parties designing garden leave clauses may find it useful to specify the employer’s right to invoke garden leave (rather than leave it implied), the employee’s continuing obligations during the period, and the interaction with any subsequent post-employment restrictions.

6. The Role of Compensation Payments

(a) Some employment contracts require the employer to pay the employee reasonable compensation during the post-employment restricted period in exchange for the non-compete restriction. The existence of such a payment is relevant — though not determinative — to the reasonableness analysis. Where an employer is paying the employee a meaningful sum to sit out a period of restriction, this tends to support the argument that the restriction is reasonable as between the parties.

(b) Compensation clauses deserve careful drafting. A clause that describes the payment as “reasonable compensation up to last drawn salary, at the employer’s sole discretion” leaves significant uncertainty: the employer retains the ability to offer a nominal sum, which would substantially weaken its enforcement position and may itself be grounds to contest the reasonableness of the restriction. Parties on both sides of an employment contract may find it useful to specify the quantum with greater precision — either as a fixed percentage of last drawn salary or with a defined floor — rather than leaving it entirely to the employer’s election.

(c) A related practical point: where the restriction is invoked at the point of termination, the terms of the compensation payment should be confirmed in writing before the restricted period commences. A departing employee who signs a termination acknowledgment that expressly preserves the non-compete, without any corresponding written confirmation of the employer’s compensation obligation, may find themselves bound by the restriction without any practical assurance that the corresponding payment will follow.

7. Pending Tripartite Guidelines

(a) In early 2024, the Ministry of Manpower announced that it was working with the tripartite partners to develop guidelines on the use of restrictive covenants in employment contracts. The guidelines were originally targeted for release in the second half of 2024, and the expected release was subsequently signalled for 2025. As at the date of this article in 2026, final guidelines have not been issued. The publicly stated direction is that restrictive covenants should only be included where there is a genuine need to protect legitimate business interests, and that restrictions should be proportionate in scope, geography, and duration to the employee’s role and actual exposure.

(b) The continuing delay (as of April 2026) is itself instructive. Employers who wait until final guidelines are issued before reviewing their standard employment documentation are postponing a calibration exercise that, in substance, the current case law already calls for. The substantive direction of the guidelines — proportionality, genuine business need, calibrated scope — is consistent with the post-Shopee and post-MoneySmart position. Employers who review their documentation against the Man Financial and Smile Inc framework now, informed by the 2024 High Court decisions, are unlikely to find themselves materially out of step with the eventual guidance.

(c) Once issued, the guidelines are not expected to have the force of law, but they are likely to be persuasive to the courts in assessing reasonableness. The Tripartite Alliance for Fair and Progressive Employment Practices (TAFEP) may also draw on them when responding to employee complaints, and the Ministry of Manpower has indicated that non-compliance may be a factor in work pass reviews.

8. Practical Considerations

(a) For employers, the key takeaway from the recent cases is that a non-compete clause should do meaningful work that the confidentiality clause does not already do. A useful starting point is to identify — specifically and concretely — what proprietary interest the non-compete is designed to protect, and whether that interest can be articulated as something beyond the protection of confidential information. If it cannot, the clause is vulnerable.

(b) The scope of each restriction should be calibrated to the employee’s actual role and exposure. A commercial director with significant client relationships and regional market involvement may legitimately attract broader restrictions than a junior employee with limited external dealings. Using a single standard clause across all employment contracts — without regard to seniority or function — creates an enforcement risk that is relatively straightforward to address at the drafting stage.

(c) Drafting discipline is particularly important because Singapore courts will not rewrite an unreasonable restrictive covenant. Under the so-called “blue pencil” approach, a court may strike out a severable word or phrase if what remains continues to make grammatical and substantive sense, but it will not rewrite the clause to make it enforceable. An overbroad non-compete is therefore more likely to fall in its entirety than to be trimmed back at trial.

(d) For employees, the critical question at the point of departure is whether the employer has complied with its own obligations — including any compensation payments owed in exchange for a non-compete restriction, and any contractual notice requirements at termination. Where the employer has fallen short, or where the termination itself may have been effected without proper notice or basis, the enforceability of the post-employment covenants may be fundamentally undermined. Taking advice early — before signing any termination acknowledgment — is considerably easier than addressing these issues after the restriction period is already running.

This article is intended for general informational purposes only and does not constitute legal advice. Readers should seek professional legal advice in respect of their specific circumstances.

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