ASIA: POST EMPLOYMENT RESTRAINTS

Post-employment restraints often cover non-competition with the former employer, non-solicitation of the former employer’s employees, and non-solicitation of the former employer’s clients, customers and vendors. This month, we consider the enforceability of such clauses across the region.

Questions Singapore Hong Kong PRC Thailand Indonesia
Are post-employment restraints enforceable? Post-employment restraints are prima facie unenforceable unless they are intended to protect a legitimate proprietary interest and are reasonable both in the interests of the parties and in the interests of the public.

Recognised legitimate proprietary interests include trade secrets, confidential information, trade or business connections and the maintenance of a stable, trained workforce.

Post-employment restraints are prima facie unenforceable unless they are intended to protect a legitimate proprietary interest and are reasonable both in the interests of the parties and in the interests of the public.

Recognised legitimate proprietary interests include trade secrets, confidential information, trade or business connections and the maintenance of a stable, trained workforce.

Parties can agree to post-employment obligations but non-compete restrictions generally apply only to senior management, senior technical personnel, and other employees to whom confidentiality obligations are imposed.

The non-compete period should not exceed two years.

 

Parties can agree to post-employment obligations but the terms must be fair and reasonable. Under section 14/1 of the Labour Protection Act, if the court finds that the terms under the employment agreement, work rules or employer’s order are unreasonably favourable to the employer or unfair to the employee, the court may, at their discretion, order that such be enforceable only to the extent fair and reasonable.

Factors the court considers include duration, scope, the size and nature of employer’s business, the employee’s position and the employee’s salary.

Past supreme court judgments have reduced the duration of the restricted period to the extent the court deems it fair and reasonable. In some cases, the court deemed 2 years as being fair between the parties but has also reduced the duration of non-compete from 2 years to 1 year where the employee received a low salary or was in an operational level position.

 

Parties can agree to post-employment obligations but the terms must generally be reasonable.

 

While there are no specific provisions or restrictions under Indonesian law that prohibits an employee who has resigned from a company from working for a competitor, employees are entitled to equal rights and opportunities to choose, obtain or move to another job and earn a decent income.

 

Are employers required to pay employees wages during the non-compete period? No, but paying wages during the non-compete period may deter employees from breaching the non-compete obligation. No, but paying wages during the non-compete period may deter employees from breaching the non-compete obligation. During the non-compete period, the employer must provide the employee with non-compete compensation on a monthly basis. The compensation generally should not be less than 30% of the employee’s monthly salary, but may vary across regions depending on local regulations. No, but it will be a factor that the court considers when assessing whether the restrictions are reasonable. Paying wages during the non-compete period is also likely to deter employees from breaching the non-compete obligation. No, but it will be a factor that the court considers when assessing whether the restrictions are reasonable. Paying wages during the non-compete period is also likely to deter employees from breaching the non-compete obligation.

 

Herbert Smith Freehills LLP provides access to Singapore law advice through our Formal Law Alliance with Prolegis LLC.

 

Key Contacts

Fatim Jumabhoy
Fatim Jumabhoy
Managing Partner
+65 6868 9822
Prawidha Murti
Prawidha Murti
Partner, HBT, Jakarta
+62 21 3973 6108
Nonnabhat Paiboon
Nonnabhat Paiboon
Partner
+66 2857 3834
Gillian Miao
Gillian Miao
Counsel, Kewei
+86 21 2322 2325
Veronica So
Veronica So
Senior Associate
+852 21014107
Nurul Ayu Fajarani
Nurul Ayu Fajarani
Associate
+ 65 6868 8056

Disclaimer

Herbert Smith Freehills LLP has a Formal Law Alliance (FLA) with Singapore law firm Prolegis LLC, which provides clients with access to Singapore law advice from Prolegis. The FLA in the name of Herbert Smith Freehills Prolegis allows the two firms to deliver a complementary and seamless legal service.