Should Employment Contracts Include a Non-solicitation Clause?

In May, the Singapore High Court found a former senior agency manager of an insurance firm responsible for contract violation. He was found soliciting the departure of over 200 agents for a competitor while he was still employed by the company.

The court determined that the former manager was required to abide by the non-solicitation policy while working for the company. The obligation, however, was not included in the agency agreement he signed when he began working for the firm. As a result, he was not bound by any non-solicitation obligation upon his departure.

Due to the way his agency agreement with the former firm was worded, the company could only establish that he had violated an express contractual obligation by failing to "conduct his insurance business with integrity and honesty."

As such, even while the court determined that he was not bound by any non-solicitation clause, it concluded that the clause would have been reasonable and enforceable against him had it been included in the agency agreement.

 

What is a non-solicitation clause?

A non-solicitation clause is an agreement between an employer and an employee. The employee agrees not to solicit the company's business clients or colleagues after leaving to join or work for a competitor.

The court's decision serves as a reminder to employers that non-solicitation clauses should be lawfully inserted into employment agreements to safeguard their business interests.

The key lesson is that every employment contract must contain an express and properly worded non-solicitation clause in order for it to be binding on employees. Otherwise, it would be hard for an employer to seek damages for a former employee's improper conduct in soliciting former clients or coworkers.

In Malaysia, the situation is somewhat similar. While post-termination non-compete agreements are void and unenforceable in this instance, a non-solicitation agreement may be upheld.

An employment contract's non-solicitation clause is binding on the employee during and after employment. The employer should set an appropriate post-employment period to ensure that the non-solicitation agreement remains enforceable after termination of employment.

Most crucially, if a non-solicitation clause is not clearly defined or correctly implemented, it may be deemed ineffective.

 

The importance of a non-solicitation agreement

Employers would have legitimate grounds to require employees to sign a non-solicitation agreement to safeguard trade secrets, client lists, and staff poaching during the employment period and for a reasonable period following termination.

An employee's obligation not to recruit customers or coworkers is closely linked to the duty of confidentiality.

Trade secrets are not restricted to industrial processes or secret formulae. In Malaysia, the courts have recognised client names, lists, and details as confidential, including trade secrets. Unlawful use of such information allows the court to issue an injunction.

Employers should always include a clause in the employment contract requiring an employee to conduct in good faith or loyalty.

The duty of good faith does not only compel the employee to refrain from misusing or leaking confidential information while employed by the firm.

Additionally, an implied responsibility prevents an employee from using confidential information received during employment for their own or another's benefit after the employment contract is terminated without the employer's approval.

 

Source: The Star

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