The Truth You Never Knew About Non-Compete and Non-Solicitation Clauses

As an employer, you would not be unfamiliar with non-compete and non-solicitation clauses. Collectively known as restraint of trade (ROT) clauses, employers or their lawyers have probably drafted one form or another of ROT clauses into your standard employment contracts so as to restrain employees from engaging in certain activities.

Nevertheless, despite your employee’s signature on the dotted line, he may not always be bound by these contractual clauses. In fact, in some cases, an employee does exactly what is prohibited in the clause, and there’s plainly nothing you can do.

Invalid by default

Here’s a bigger surprise: ROT clauses are by default contrary to public policy, and the default attitude of the courts is that they have no effect. This is because there is a public interest in every person carrying on his or her trade freely, and ROT clauses seek to restrain just that.

Does that mean you’ve wasting money inserting these clauses? Not necessarily. Although they are invalid by default, there are certain conditions under which the clause will be able to bind your ex-employee.

You must have a legitimate interest that you, as employer, wish to protect.

This is not to mean that any interest would do. You need to have a legitimate proprietary interest to protect, such as trade secrets, trade connections or the maintenance of a stable and well-trained workforce.

For example, if you’re in the food industry, often you might have a special recipe that is the secret behind your successful business. Now that would qualify as a trade secret you want to stop an employee from leaking to a competitor.

Another example is this: let’s say your employee who used to manage your clients now wishes to leave. The danger with that is eminently clear – these confidential trade connections could be easily lost if such an employee is not stopped. If lost, that could certainly spell doom for your business.

How about the need to maintain a stable and well-trained workforce? Well, ever heard of those big bankers jumping ship and bringing along an entire team? Preventing employees who wish to leave from enticing his companions to do the same is a legitimate thing to protect as well.

Note that none of this includes the “skills, experience, know-how and general knowledge acquired by an employee as part of his job during his employment”. An example of this would be general cooking skills, as compared to a secret recipe. Even if these will ultimately equip him or her as a competitor, that’s the risk you take in employing him or her.

All restraints must be reasonable.

If you have one of the above, it doesn’t mean that you can now wave the clause in your ex-employee’s face. In addition to a legitimate proprietary interest, the restraints you attempt to place on your ex-employees’ future trading activities must also be reasonable.

Well, you probably think that everything you put inside your employment contracts is reasonable, but that doesn’t mean that the courts will necessarily agree with you. Whether something is reasonable or not is very dependent on the factual circumstances, and it is best to always engage a lawyer to advise on your situation.

However, some factors emerge consistently as important considerations. For example, if your ex-employee is your company’s equivalent of a Most Valued Player (MVP), that might justify a longer period of restraint than a bench-warmer equivalent. Furthermore, if he or she partook in different areas of your company’s business, you could also include a wider range of activities in the ROT clause and it might still be enforced. However, if you’re going to attempt to stop him or her from partaking in these activities not just in Singapore, but anywhere else in the world, that’s equivalent to forcing him or her to change trade, and that’s rarely deemed reasonable.

At the end of the day, know that your restraints must genuinely be for protecting your own interests, and not primarily to prevent your ex-employees from getting employment elsewhere.

Popular practice

One practice that has become popular to try to “increase” the enforceability of ROT clauses is by entering into a separate agreement with your employee, which compensates him or her with an additional consideration specifically for the period of restraint. Since this is evidence that the employee is properly compensated, it might convince courts that the ROT clauses are acceptable.

Seek legal advice

Due to the fact-sensitive nature of the enquiry, whether a ROT clause is enforceable is not something that can be conclusively answered by this article. Nevertheless, it is hoped that the main takeaway of this article is that standard ROT clauses cannot be used indiscriminately for all your employees regardless of circumstances. Instead, seeking better drafting advice could be more effective in reducing your business risk.

Brought to you by DLLC Legal News

DLLC is a Singapore-based law firm that helps businesses and business owners with their legal needs. The firm is a keen supporter of Small and Medium Enterprises and advises many SMEs on their legal issues, both corporate and litigation matters. Grab a FREE CONSULTATION today at www.dllclegal.com or send your email to contactus@dllclegal.com to book your appointment.

The contents and views set out above are those of the author(s) and/or are personal views and for information only. It does not constitute in any way any legal advice or representation to the reader even if the facts appear similar to your fact situation.  You are strongly encouraged to seek legal advice should you have any legal issues.

New Employer Obligations, Are You Aware?

New Employer Obligations – Are You Aware?

If you are an employer, it’s definitely high time to sit up and take a close look at the slew of new legislative changes to Singapore’s employment scene.

Not only do employers now have numerous new mandatory obligations to fulfill, failure to comply could attract administrative penalties and criminal liabilities, both which could be crippling to a growing business.

To help you avoid such costly, and certainly unnecessary, mistakes, a summary of these changes is provided below.

Employment in general

Since its first announcement in April 2014, the Ministry of Manpower’s (“MOM”) new amendments to the Employment Act (“EA”) have finally taken effect on April 2016: all employers are now required to issue itemised payslips, key employment terms (“KETs”), and keep employment records.

This chain of new requirements forms a part of the MOM’s attempts to statutorily strengthen the protection for workers under “non-traditional work arrangements”, such as term contract workers and freelancers.

Another target group for protection is identified to be the low-wage workers who are often vulnerable to deception and exploitation by their employers. Through these new obligations, employees abound would be able to obtain a better understanding of their employment terms and entitlements. As a result, employers would be able to avoid many potential conflicts with their employees.

While these requirements may sound daunting, the MOM has provided clear details and published guides on its official website, educating employers on how to comply with them.

In addition, the period from April 2016 to end-March 2017 has been kept as a grace period for companies, during which the MOM would adopt a “light touch enforcement approach”: the focus will be on education, and not on punishment for non-compliance. Thus, despite the potential administrative penalties for non-compliance, there is sufficient time and help available to ensure that your business stays in line.

Employment of foreign workers

Apart from the EA, matters relating to foreign workers are also governed by the Employment of Foreign Manpower Act (“EFMA”). In order to fortify the protection of the well-being of foreign workers, EFMA prescribes both administrative penalties and criminal liabilities for breaches of the legislation.

On top of that, the criminal sanctions were strengthened in 2012 in order to act as a more powerful deterrent against potential offenders.

On 17 April 2016, a Singaporean employer was convicted for obtaining work passes for 30 foreign employees to work in his non-existent company and demanding money from the workers for helping them get their work passes. He was charged for 5 offences and sentenced to 27 months of jail. This acts as a timely reminder for other employers: unlike the MOM’s light touch enforcement approach under the EA, the EFMA sanctions are, in contrast, readily enforceable and enforced.

Bearing this in mind, swift action is needed from employers of foreign workers in light of the new increase to the qualifying salary for Employment Pass (“EP”) applications from S$3,300 to S$3,600, as of 1 January 2017. Such a change is unsurprising given that the MOM regularly updates this figure to keep pace with rising local wage, maintain the quality of Singapore’s foreign workforce and enhance their complementarity to the local workforce.

For employers hiring existing EP holders, the MOM has implemented a buffer period so that adjustments can be made accordingly. If your employee’s EP expires before 1 January 2017, he or she will be able to renew, for a duration of up to 3 years, based on the old EP criteria. If it expires between 1 January 2017 and 30 June 2017, he or she will be able to renew, for a duration of 1 year, based on the old EP criteria. However, if your employee’s EP expires 1 July 2017 onward, he or she will have to meet the new criteria for renewal, for a duration of up to 3 years.

All this might sound utterly confusing, but the MOM simplifies matters for employers by providing a Self-Assessment Tool which can help assess if EP candidates will meet the new salary criteria. Such a tool will be up and running on the MOM website by November 2016.

A long-term improvement

With all points considered, while the new statutory amendments seem more burdensome than helpful for employers, both employees and employers do benefit from the overall improvement in the employment standards in the long run, with minimised employment conflicts and an increase in workforce quality.

What is clear, however, is that these legislative reviews demonstrate the government’s determined efforts to ensure that it keeps pace with the “changing labour force profile and employment landscape” in Singapore.

A failure to stay on top of such statutory changes is thus a failure to recognise the dynamic nature of the local work landscape. Ignoring the changes could be fatal to an originally flourishing business.

Stay updated and safeguard your business today!

Brought to you by DLLC Legal News

DLLC is a Singapore-based law firm that helps businesses and business owners with their legal needs. The firm is a keen supporter of Small and Medium Enterprises and advises many SMEs on their legal issues, both corporate and litigation matters. Grab a FREE CONSULTATION today at www.dllclegal.com or send your email to contactus@dllclegal.com to book your appointment.

The contents and views set out above are those of the author(s) and/or are personal views and for information only. It does not constitute in any way any legal advice or representation to the reader even if the facts appear similar to your fact situation.  You are strongly encouraged to seek legal advice should you have any legal issues.

Dealing with bankruptcy woes

Dealing with bankruptcy woes

Just being handed a bankruptcy order and feeling helpless? Or stuck in bankruptcy for a while now and trying to get out? Don’t panic yet.

With the new 1 August 2016 amendments to the Bankruptcy Law, perhaps it is time to relook at whether you can escape your current bankrupt state.

Annulment of bankruptcy order

Annulment is one of the two main ways of getting round a bankruptcy order.

Unlike a discharge, annulment wipes out the bankruptcy altogether and puts the bankrupt in the same position as if no bankruptcy order has been made. So if you can get an annulment, that’s your best game plan.

How do you then go about doing so? Well, it depends on why you landed with such an order in the first place.

Certain pre-conditions are needed before a bankruptcy order can be made by the court, such as an immediately payable debt of at least $15,000, or establishing that the bankrupt should fall within Singapore’s jurisdiction. Thus, if any of these pre-condition is proven unsatisfied, the order can be annulled provided an application to the court was made within 12 months of the order.

Another way is to settle your debts in full, since a bankruptcy order is granted precisely because a debtor is unable to pay his or her debts. If you can indeed do so, annulment can be obtained from the court, upon the bankrupt’s application, by the OA’s certificate of annulment, upon his satisfaction of the bankrupt’s full settlement of his debts.

A third way is to prove that the distribution of assets ought to be made under Malaysian law.

Lastly, annulment may be obtained if the debtor’s creditors accept a composition or scheme of arrangement of the bankrupt’s affairs by a special resolution.

Discharge of bankruptcy order

On the other hand, even if the debtor may not be able to repay all its debts, he may still get a discharge on the satisfaction of certain conditions.

The method of discharge differs according to the total value of your debts.

If your proved debts exceed $500,000, you can only apply to the court for a discharge within the first 3 years of your bankruptcy. The court, upon hearing what the OA and any creditor has to say, will then either refuse your application, grant you an unconditional discharge, or impose conditions on your discharge.

Such a decision is based on various factors, including how cooperative the bankrupt has been, how many creditors the bankrupt has, dividends declared, and the grounds for the application. For example, a bankrupt who was caught in an economic downturn through no fault of his own is more likely to get a discharge, as compared to an uncooperative bankrupt.

Additionally, the court cannot grant an unconditional discharge if the bankrupt committed certain offences, or where special facts are present. The latter pertains to those relating to the bankrupt’s fraudulent or dishonest business conduct or preferential treatment of certain creditors leading up to his bankruptcy.

Alternatively, if your proved debts do not exceed $500,000, the OA can exercise discretion to issue a certificate discharging you from bankruptcy. The 1 August 2016 amendments to the Bankruptcy Law have clarified this process by establishing clearer exit points and time frames.

For bankruptcy applications made on August 1 2016 or later, a first-time bankrupt becomes eligible for discharge somewhere between 3 to 7 years, while a repeat bankrupt becomes eligible for discharge between 5 to 9 years.

The exact period depends on factors such as whether creditors object to the discharge, whether a bankrupt has paid its target contribution in full or whether a bankrupt has become unable to do so due to “extenuating circumstances”.

Also, such bankrupt must also have submitted a statement of affairs and not have travelled or remained overseas without permission.

In addition, a bankrupt who is able to settle his target contribution in full prior to their discharge will have their records removed from a register maintained by the OA 5 years after the discharge. A target contribution is the amount of debt a bankrupt has to pay before becoming eligible for discharge. Paying up one’s target contribution in full prevents a permanent record on a publicly accessible register, which adversely affects one’s credit rating and trustworthiness.

Are you in the clear yet?

Bankruptcy can have devastating effects on not only one’s financial status, but also one’s social status. If your woes persist even after this self-help article, do not hesitate to contact us for more guidance.

Brought to you by DLLC Legal News

DLLC is a Singapore-based law firm that helps businesses and business owners with their legal needs. The firm is a keen supporter of Small and Medium Enterprises and advises many SMEs on their legal issues, both corporate and litigation matters. Grab a FREE CONSULTATION today at www.dllclegal.com or send your email to contactus@dllclegal.com to book your appointment.

The contents and views set out above are those of the author(s) and/or are personal views and for information only. It does not constitute in any way any legal advice or representation to the reader even if the facts appear similar to your fact situation.  You are strongly encouraged to seek legal advice should you have any legal issues.

Prenuptial Agreements – Not A Barrier to Nuptial Bliss

A common sight in celebrity weddings in the West, prenuptial agreements are more of an exception than the norm here in Singapore. Since they usually deal with matters in the event of a divorce, many view them as a sign of bad luck or distrust.

However, superstitions aside, a prenuptial agreement reflects, more than anything, excellent foresight and preparations for the worst. In fact, a well-drafted prenuptial agreement in which both parties’ rights and obligations are adequately protected can create a win-win situation.

Nature of a prenuptial agreement

A prenuptial agreement is essentially a contract that a couple enters into before they get married, to deal with matters in the event of divorce such as maintenance, division of matrimonial assets and care, control and custody of children.

However, it is not restricted to such, and could also include terms governing parties’ marital rights and obligations. An example is one requiring parties to maintain separate financial lives.

Legality of a prenuptial agreement

Preliminarily, the prenuptial agreement must be a valid enforceable contract. In other words, it must satisfy the basic legal requirements under the laws of contract in Singapore. Thus, for example, if the agreement was not supported by consideration, it would not be enforceable.

However, even if it is a perfectly valid contract, a prenuptial agreement is not enforceable in and of itself in Singapore. Instead, it is but one factor taken into consideration by the Singapore courts in divorce proceedings.

Nevertheless, this does not mean that it is then pointless to go through the expense of preparing and entering into a prenuptial agreement. In fact, there have been cases where a prenuptial agreement was given conclusive weight and its terms given full effect, through the use of a consent order.

What then explains the difference in treatment? The crux lies in whether the provisions in the prenuptial agreement conform to the different underlying statutory principles guiding the courts in matrimonial proceedings.

For example, for matters relating to child custody, the overarching principle is that the child’s welfare is paramount. Hence, if arrangements in the prenuptial agreement are in the child’s best interests, the court will likely not hesitate to give it effect.

Therein lies the importance of seeking assistance from an experienced and skilled lawyer for the purposes of drafting a prenuptial agreement. The failure to ensure an alignment between terms in the prenuptial agreement and the various statutory principles would effectively render the entire attempt futile.

Avoid the pitfalls

A few self-help tips are listed here that could increase the likelihood of a prenuptial agreement being given greater weight by the courts.

  1. Always ensure that both parties have independent legal advice at the time of signing of the agreement;
  2. The court is more likely to give effect to terms that parties have willingly consented to whilst being fully aware of their legal consequences.
  3. Never misrepresent the nature or value of one’s assets at the time of signing of the agreement. If not, the other party can always allege unfairness later on.
  4. Clearly specify the choice of law that the prenuptial agreement is to be subject to. If a country recognising prenuptial agreements as valid in and of itself is selected as the choice of law, local courts are more likely to give its terms more weight.
  5. Where divorce has become an imminent result, the couple could choose to enter into another agreement: a post-nuptial or Separation or even a Settlement agreement on all the issues of the divorce. Since it is entered into at a closer point in time to the divorce, its terms are likely to hold more weight.

What do you have to lose?

A well-drafted prenuptial agreement could not only result in swift resolution of divorce proceedings and savings in legal costs and time, it can also greatly reduce the acrimony and emotional suffering that parties are put through during divorce proceedings.

Comparing the options, one definitely has more to lose from not protecting oneself at all, than from jumping on the prenuptial bandwagon.

Brought to you by DLLC Legal News

DLLC is a Singapore-based law firm that helps businesses and business owners with their legal needs. The firm is a keen supporter of Small and Medium Enterprises and advises many SMEs on their legal issues, both corporate and litigation matters. Grab a FREE CONSULTATION today at www.dllclegal.com or send your email to contactus@dllclegal.com to book your appointment.

The contents and views set out above are those of the author(s) and/or are personal views and for information only. It does not constitute in any way any legal advice or representation to the reader even if the facts appear similar to your fact situation.  You are strongly encouraged to seek legal advice should you have any legal issues.