As businesses expand into the Asia-Pacific (APAC) region, they encounter a myriad of challenges managing employment contracts. Among these, non-compete agreements have become a focal point, with recent legal developments bringing these clauses into the spotlight.
For example, a ruling in Singapore clarified that non-compete clauses are only enforceable if they protect “legitimate business interests.” Similarly, the courts in Hong Kong determined that restrictive covenants aimed solely at preventing competition will not be upheld.
These developments are prompting a wider discussion on the effectiveness and appropriateness of non-compete clauses across APAC. These clauses, typically included in employment contracts, aim to restrict former employees from entering into direct competition with their previous employers. However, the enforceability of such agreements varies significantly from country to country.
In our previous blog post, we explored the top questions international companies have when expanding into APAC. In this follow-up, we compare how non-compete agreements are regulated across a sampling of APAC countries.
Refresher: what qualifies as a non-compete agreement?
Non-compete clauses are just one part of a broader “family” of restraint clauses often found in employment contracts. These include:
- Non-compete restraints: Bar the employee from working with or being involved in a competing business.
- Confidentiality restraints: Prohibit the disclosure of an employer’s trade secrets.
- Non-solicitation restraints: Prevent the employee from soliciting the employer’s clients.
Comparison of non-compete regulations across APAC
| Country | Are non-compete clauses legal/enforceable or prohibited? | Are payments during the non-compete mandatory? | What factors are taken into consideration in enforcing non-competes? | Can extended garden leave be used as an alternative? |
| Australia | Prima facie void. Unenforceable unless the employer can prove that the restraint is reasonable and necessary to protect their legitimate business interests. | No |
| Yes, but a contract must be provided. |
| China | Legal and enforceable, subject to conditions in the Labor Contract Law and other regulations. | Yes |
| Yes, but both parties must agree to it. |
| Hong Kong | Prima facie void. Cannot be wider than reasonably necessary in terms of duration, scope and geography. | No |
| Yes, however, the employee has a right to buy out the notice period by making payment in lieu of notice. |
| India | Post-termination non-competes are unenforceable. However, non-competes during the term of employment are enforceable. | No |
| Yes, but the duration of the garden leave cannot be longer than the notice period in the employment contract. The employee will be considered to still be in employment during the period of garden leave. |
| Japan | Can be enforced as long as they are reasonable. | No, but reasonable compensation is a factor. |
| Yes, however, the employee has the statutory right to terminate the employment earlier. |
| Malaysia | Generally void and unenforceable. | No |
| Yes, but the employee has a right to reject the garden leave and they also have the statutory right to terminate the employment without notice by paying salary in lieu. |
| Philippines | Generally allowed but must be reasonable as to time, trade and place. | No |
| Yes. |
| Singapore | Not banned but prima facie void. The enforcing party has to justify the non-compete clause. | No |
| Yes, but the employee has the statutory right to terminate the employment earlier by paying salary in lieu. |
| Thailand | Valid and enforceable to the extent that it is not contrary to public order. The Court has to find it fair and reasonable. | No |
| Yes, although Thai law does not have a concept of ‘garden leave.’ The employee is still entitled to salary during the garden leave and also has a right to resign during this period. |
Takeaways on non-compete agreements in APAC
Navigating non-compete agreements in the APAC region requires a nuanced understanding of each country’s legal framework. While some jurisdictions, like Singapore and China, permit non-competes under certain conditions, others, such as India and Malaysia, largely view them as unenforceable post-employment.
The key takeaways for employers in APAC include
- Legitimacy and Scope: In jurisdictions where non-competes are enforceable, courts often assess the legitimacy of the business interest being protected, as well as the reasonableness of the clause’s scope in terms of duration, geographical reach, and restricted activities.
- Compensation Considerations: While compensation during the non-compete period is not universally required, it plays a critical role in some countries, like China and Japan. The provision of reasonable compensation can influence the enforceability of the clause.
- Alternatives to Non-Competes: Extended garden leave can be a viable alternative in many APAC countries. It may provide employers with a means to protect their interests while maintaining the employee’s status until the official end of the employment relationship.
- Local Compliance: It is crucial for businesses to tailor their non-compete clauses to align with local laws and cultural expectations. Overly broad or restrictive clauses are likely to be struck down by courts, particularly in regions where the protection of an employee’s right to earn a living is strongly upheld.
Companies expanding into the APAC region must carefully craft their employment agreements, considering both the local legal landscape and the practical implications of non-compete clauses.
Understanding the varied enforcement practices across the region can help businesses safeguard their interests while avoiding potential legal pitfalls.
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