Tan See Leng: No new regulations on non-compete clauses, guidelines to unveil in 2024

SINGAPORE: Instead of implementing comprehensive regulations to address potential unfair non-compete clauses in certain employer-employee contracts, Manpower Minister Tan See Leng disclosed that guidelines on such clauses are in the finalization stage.

These guidelines are expected to be unveiled in the second half of 2024.

When pressed by Workers’ Party Member of Parliament Associate Professor Jamus Lim about the possibility of directly prohibiting non-compete clauses, Dr Tan clarified that the Ministry of Manpower (MOM) currently has no plans to introduce additional regulations on this matter.

New guidelines to “help educate employers and shape norms”

On Tuesday (6 Feb), Dr Tan informed the Parliament that the Ministry of Manpower (MOM) and its tripartite partners are actively developing guidelines to educate employers and shape norms, similar to existing guidelines in use.

Addressing the Parliamentary Questions (PQs) filed by fellow Members of Parliament (MPs) about Lazada’s recent retrenchment exercise, he highlighted the clear principles established by civil courts to determine the acceptability and enforceability of non-compete or restraint of trade clauses in employment contracts.

“The courts will also balance employers needs to safeguard their businesses and employees ability to earn a living and take into account that the cost should not be used to help businesses gain unfair advantages.”

Rather than advocating for additional regulations, Dr Tan advised employees who believe they are adversely affected by unreasonable or unjustified restraint of trade clauses to seek assistance from unions, TAFEP, or MOM.

Defending his stance, Dr Tan asserted that overly restrictive restraint of trade clauses could “disadvantage retrenched employees and create difficulties in finding employment.”

He emphasized the need for a balanced approach that considers both employers’ requirements to protect their businesses and employees’ rights to earn a livelihood, cautioning against the misuse of such clauses for unfair advantages in business competition.

Non-compete clauses in job contracts spark scrutiny

The non-compete rule also referred to as restraint of trade clauses, has recently stirred concerns, particularly in high-profile cases involving two prominent tech companies.

Following a retrenchment exercise in early January, former Lazada employees expressed unease, questioning the 12-month non-compete clause imposed on them. This clause extended its coverage to a broad list of tech, retail, and logistics companies.

Last Week, the courts dismissed Shopee’s requests for injunctions against a former employee who had resigned and joined ByteDance.

Notably, upon joining Shopee, the employee had signed a Restrictive Covenants Agreement that included both a non-solicitation and non-competition clause, along with an Employee Confidentiality Agreement.

Assoc Prof Lim, WP MP for Sengkang GRC, submitted a PQ to inquire about the MOM’s position on companies forfeiting unvested Restricted Stock Units (RSUs) during retrenchment rather than resignation.

In response, Dr Tan affirmed that only non-workmen, those not primarily engaged in manual labour, may receive salary through stock options, including RSUs.

He stressed that the terms surrounding RSUs are best discussed between employers and employees during employment contract negotiations.

“Employment contracts should clearly indicate the conditions under which unvested RSUs are forfeited. ”

“As these RSUs are typically given to employees in senior positions, they would be able to negotiate the terms with their employers.”

He added that MOM does not currently track the prevalence of RSU issuances.

Drawing a parallel with non-compete clauses, Dr Tan explained that employees with disputes over RSUs can lodge a claim with the Tripartite Alliance for Dispute Management (TADEM) for mediation.

If mediation proves unsuccessful, the claim may then be referred to the Employment Claims Tribunals for adjudication.

Highlighting the claim limits of the tribunals, Dr Tan noted that for claims exceeding these limits, employees would be required to initiate a civil claim at the courts.

This comprehensive overview emphasizes the complexities surrounding RSUs and the dispute resolution process.

No plans to introduce additional regulations on prohibiting non-compete clauses

In a follow-up question, Assoc Prof Lim pressed the Minister on whether there would be a direct prohibition of non-compete clauses, particularly for lower- to mid-level employees.

“My concern has to do with the danger of this kind of inclusion of such boilerplate language for mid-level and low-level roles because of the chilling effect it can have for employment in general.”

he also pointed out that many of these employees might lack the financial means for legal recourse.

In response, Dr Tan clarified that the MOM does not have plans to introduce additional regulations on this matter.

He cited that MOM and its tripartite partners are developing a new set of guidelines, but also emphasized the difficulty of implementing a one-size-fits-all policy due to the diverse nature of businesses, ranging from financial services to manufacturing.

While he acknowledged concerns raised by Professor Lim regarding mid-level employees, Dr Tan said MOM aims to assist them in negotiations, there is recognition that the nature of negotiations for RSUs, stock options, and wages often involves a different level of seniority, maturity, and experience.

“I  hope that we should not think of smearing across as a one-size-fits-all policy because we’ll be setting ourselves back.”

Lazada failed to notify FDAWU about the retrenchment exercise

During the parliamentary session on Monday, MPs also raised questions about Mandatory Retrenchment Notifications (MRNs) and Lazada’s compliance with these regulations.

According to Dr Tan, the online retail giant did submit the MRNs for its January 2024 retrenchment exercise within the required timeframe of five working days after notifying its employees.

However, he pointed out that Lazada did not adhere to the Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment (TAMEM) by not informing FDAWU about the retrenchment.

Following this revelation, Lazada issued an apology and engaged in negotiations with FDAWU.

Subsequently, on 4 February, the company announced an “enhanced support package” for eligible union members who were retrenched.

Initially, retrenched workers were informed that they would receive two weeks’ salary for every year of service.