Contributed By Yoon & Yang LLC (Seoul - HQ)
The Korean Commercial Act imposes a non-competition obligation upon directors, whereas employees are not subject to the same restriction. Nevertheless, employees’ non-competition obligation can be partially recognised through interpretations of court precedents.
The Korean Supreme Court has held that, where an employment contract has a non-competition clause, such clause is valid, so long as it is reasonable. However, if the non-competition clause excessively restricts (i) employees’ constitutionally protected rights (eg freedom in choosing jobs or providing labour) or (ii) free competition, then such non-competition clause is invalid for going against Article 103 of the Civil Act.
The Korean Supreme Court further held that, in order to determine whether a non-competition clause is valid, there must be a comprehensive consideration of various factors. Among other things, the court considers (i) whether the employer has an interest that necessitates protection, (ii) the resigning employee’s position and rank, (iii) the reasons for the employee’s resignation, (iv) territorial scope, period, and the types of jobs restricted through the non-competition clause, (v) whether the employee received compensation in exchange for signing the non-competition clause, and (iv) public interest furthered by the non-competition clause.
In practice, the most common issues that arise relating to non-competition clauses are the ones involving territorial scope and period. A non-competition clause may be invalidated for restricting an employee’s freedom of job selection if (i) the period of restriction is unnecessarily long, (ii) the territorial scope of restriction is excessively broad covering territories that need not be restricted to protect the employer’s interests, and (iii) the non-competition clause restricts employees from working in unnecessarily broad categories of jobs that are unrelated to protecting the employer’s trade secrets.
If an employee breaches a non-compete agreement, then an employer may request the court for an injunction or a preliminary injunction to suspend the relevant employee from continuing the competitive acts in breach of the non-compete agreement. Moreover, employers may seek civil damages against relevant employees if the employer has suffered damages from the employee’s breach.