Protecting the Business After an Employee Leaves: Non-Competes, Confidentiality and Trade Secrets

Post-employment non-compete clauses are generally void in Malaysia under section 28 of the Contracts Act 1950, but employers can still enforce confidentiality obligations, protect trade secrets in equity, restrain misuse of confidential information, and enforce restraints that operate during employment.

Why are non-compete clauses unenforceable?

Section 28 of the Contracts Act 1950 renders void every agreement that restrains anyone from exercising a lawful profession, trade or business, subject only to narrow statutory exceptions (such as the sale of goodwill of a business). Unlike English common law, Malaysian law does not save ‘reasonable’ restraints: a clause barring an ex-employee from joining a competitor for 12 months is void regardless of how moderate it appears.

Restraints operating during employment stand differently — an employee can validly be barred from moonlighting for competitors while employed, since that restrains conduct within, not after, the employment.

What can employers enforce after employment ends?

Confidentiality survives. Express confidentiality clauses, and the equitable duty of confidence, prevent ex-employees from using or disclosing trade secrets and genuinely confidential information — customer pricing structures, formulas, technical processes, strategic plans — after departure. Malaysian courts have granted injunctions and damages for breach of confidence against departing employees and their new employers.

The limits matter: an ex-employee’s general skill, knowledge and experience acquired on the job belong to the employee. Protection attaches to specific, identifiable confidential information, and employers claiming it must be able to particularise what was taken — which is why exit-stage forensics on devices and email accounts are often decisive.

How should employers structure their protections?

Practical architecture includes tightly drafted confidentiality and intellectual property clauses; garden leave provisions allowing the employer to keep a departing employee away from clients during the notice period while paying salary; non-solicitation undertakings obtained in separation agreements with fresh consideration (their enforceability is contested under section 28, but they retain settlement and deterrent value); and access controls that limit what any single employee can extract.

On exit, conduct structured offboarding: written reminders of continuing confidentiality duties, certified return or deletion of company data, and prompt revocation of system access. Speed matters in breach cases — injunctions protect confidential information; delay destroys it.

Key Takeaways for Employers

• Post-termination non-competes are void under section 28 — do not rely on them.
• Confidentiality clauses and the duty of confidence are enforceable and survive termination.
• Restraints during employment, including anti-moonlighting clauses, are valid.
• Garden leave during notice is a lawful and effective substitute for a non-compete.
• Protect information operationally: access controls, exit forensics and fast injunctive action.

Frequently Asked Questions

Are non-compete clauses ever enforceable in Malaysia?

Post-employment non-competes are void under section 28 of the Contracts Act 1950, save for narrow exceptions such as restraints attached to the sale of business goodwill. Restraints during employment remain valid.

Can an employer stop an ex-employee using its client list?

Yes, where the client information is genuinely confidential and was taken or memorised for misuse, the employer can sue for breach of confidence and seek injunctions — but general market knowledge is not protectable.

What is garden leave? An arrangement during the notice period where the employee remains employed and paid but is required to stay away from work, clients and confidential information — keeping them out of the market lawfully.