Non-Compete Clause. Can your employer stops you from joining a competitor?

Non-Compete Clause. Can your employer stops you from joining a competitor?

Allow me to paint you this scenario. You were selected and hired by the company to work for them. You then proceed to sign the “Offer Letter” and while you dutifully going through it, you noticed a clause that reads “In the event that you leave the Company, you shall not, for a period of twelve (12) months, join/own a competing business in the same industry and products similar or identical to that of the Company. Should you decided to do so, you will be LIABLE to reimburse the Company …”. You paused momentarily after reading it but proceed to sign the Offer Letter as you have been wanting this job very badly after months of going through interviews after interviews (Totally understand that!).

Now, let me fast-forward it to 5 years later. You performed well in this company and at the same time, you received a new job offer with better remuneration package which you have been yearned for and the best part is … You accepted the new offer! You then resigned and duly informed your current HR. Hours later, your HR dutifully informed you that you are not allowed to join the new company as it is deemed as your current company’s competitor. And if you do join them, you are liable to pay certain amount of ‘compensation’ back to the company. You are now in a big dilemma because you have agreed to join the new company and have signed the new offer letter. What can you do?

Well, in this case, a former employee is allowed to join a competitor as held in Stamford College Group Sdn Bhd v Raja Abdullah R Othman [1991] 2 CLJ (Rep) 167. (You by now must be wondering, “Did I just read that???”) – YES, You DID! In this case, the High Court refused to grant an injunction to restrain Raja Abdullah.

However, a point to note is that, Client Pinching is not allowed if there is a non-solicitation clause as held in Svenson Hair Centre Sdn Bhd v Irene Chin Zee [2008] 7 MLJ 127 where the Defendant (Irene) was a branch manager of the plaintiff (Svenson)’s beauty business in PJ, who was subsequently joined a competitor. The employment agreement contained a 12 month post-employment non-compete and non-solicitation clause. The Court enforced the clause and allowed the injunction applied for by the plaintiff.

Staff Pinching is allowed according to Pearson Malaysian Sdn Bhd v Wong Mei Mei & 2 Ors [2009] 1 LNS 1249. This is the only reported case on this issue whereby the High Court had to decide on whether staff poaching constituted a breach of duty by the employee. The Court answered in the negative.

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Picture Source: http://www.canadianbusiness.com/innovation/non-compete-clauses-dont-work/