In the dynamic landscape of the corporate world, businesses consistently strive to retain their top-performing individuals. Preserving a cohesive and talented workforce is essential, and companies often implement measures to safeguard against talent attrition when an employee departs.
Non-poaching clauses emerge as valuable tools in these scenarios. They are agreements between the company and former employees to maintain professional boundaries, preventing the solicitation of colleagues after the employee’s departure.
What are non-poaching clauses?
Non-poaching clauses are one of the post-employment restrictive covenants commonly found in an employment contract that prohibit former employees from enticing or recruiting their former colleagues of their previous company to join another company.
Enforceability of non-poaching clauses
Generally, non-poaching clauses are recognized and legally enforceable in Malaysia, provided that it is an express term of the employment contract. Otherwise, courts may be reluctant to impose an implied duty on ex-employees not to poach their former colleagues in the absence of such clause.
The case of Pearson Malaysian Sdn Bhd v Wong Mei Mei & 2 Ors [2009] 1 LNS 1249 answers the question of what happens if there is no non-poaching clause in the employment contract.
- In this case, the employer alleged that its ex-employees breached their duty of care by soliciting other employees to leave employment to join another company.
- Unfortunately, the employer did not include a non-poaching clause in the employment contract.
- The employer’s claim failed because there was no other evidence before the court to prove that there was poaching.
- The Court held that there is no implied duty imposed on the employee not to poach as the duty to act with fidelity and good faith does not extend to non-poaching.
The Pearson case can be contrasted with Sundai Malaysia Sdn Bhd v Masato Saito & Ors [2013] 9 MLJ 729 :
- In this case, the company (a private education centre) brought an action against its ex-employees for breach on of duty of fidelity or good faith and breach of confidentiality.
- The company was able to establish that there was a planned “poaching raid”, where the company’s director actively encouraged and enticed his colleagues to leave the company to join a competitor he had set up.
- The act of poaching was also carried out at a crucial timing when final examinations were near, leaving the company with no time to find suitable replacement teachers to replace the resigned employees.
- The Court considered other evidence like alleged conspiracies to disrupt the plaintiff’s business.
- The Court held that although the duty to act in good faith and fidelity were not spelt out in the employment contract, there is an implied duty to act in good faith and fidelity to the employer.
Key Takeaways
Cases such as Pearson and Sundai, serve as reminders of the critical need for: (a) well-crafted non-poaching clauses explicitly integrated into employment contracts; and (b) robust evidence to substantiate claims of poaching.
Determining when a specific set of actions crosses the threshold into “poaching” is not always immediately apparent. Questions arise, such as whether inviting a colleague to apply for a new job constitutes poaching, or if actively addressing colleagues’ workplace grievances and suggesting they consider alternative opportunities fall within that realm.
In the pursuit of talent retention, employers must strategically prioritize the careful development and implementation of non-poaching clauses. These clauses can prove indispensable for companies aiming to safeguard their competitive edge in the ever-evolving employment landscape.
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This article was written by Tiffany Chin (Associate) from Donovan & Ho’s dispute resolution practice.
Donovan & Ho is a law firm in Malaysia. Our dispute resolution provides advice and legal representation in the civil and industrial courts. We also represent clients in both domestic and international arbitration, as well as other forms of alternative dispute resolution. Our experienced lawyers are also able to assist in commercial and civil disputes (such as debt recovery, shareholders’ or directors’ disputes, breach of contract and claims for injunctive relief), constructive disputes (arbitration and/or adjudication proceedings, disputes relating to delays, liquidated damages, defects and rectification work) and employment disputes (unfair dismissal claims, judicial review proceedings, and employment-related civil claims). Have a question? Please contact us.
