Hello, I am Attorney Eom Sang-yun from Cheongchul Law Firm.

Today, we will discuss the validity of a non-compete agreement when no compensation has been provided for it.

[Question]

Can a non-compete agreement be considered valid even if no compensation has been provided?

[Answer]

A non-compete agreement (or non-competition agreement) may be deemed invalid as a legal act contrary to good morals or public order as defined in Article 103 of the Civil Code, when it excessively infringes upon the employee's freedom of choice of profession guaranteed by the Constitution. In this case, the court considers a variety of factors, including the value of the employer's interests deserving protection, the employee's status prior to retirement, the duration, region, and target profession of the non-compete restriction, whether compensation has been provided to the employee, the circumstances of the employee's retirement, public interest, and other relevant factors in determining the validity of the non-compete agreement (2009Da82244).

Specifically, the court has ruled that a three-year non-compete period was excessive because the employee did not receive explicit compensation from the company for the non-compete (Seoul Central 2021KaHab21786), whereas if the employee received compensation equivalent to their annual salary, the non-compete agreement was deemed valid.

However, the existence of compensation cannot be considered the sole factor in determining the validity of a non-compete agreement. For instance, in a case where a senior researcher at a company engaged in the manufacturing and sales of semiconductors and related products signed a non-compete agreement stating, 'I will not work for a competitor for two years after resignation,' although the company offered to pay 150 million won as compensation for the non-compete agreement, the researcher refused it. The company proceeded to pay the amount, and the researcher then deposited it to return, along with the fact that the researcher received considerable salary and bonuses during approximately 19 years of employment, the court concluded that 'the non-payment of compensation for the non-compete agreement or the return of it does not automatically render the non-compete agreement invalid' (2021KaHab10300).  

Furthermore, the court noted in this decision that ① the researcher acquired the company's trade secrets and technical know-how during their employment, ② the company implemented strict security policies regarding such information, ③ if the information acquired by the researcher were leaked to a competitor, it would cause significant damage to the company, and ④ the semiconductor-related field is a technology-intensive industry with high barriers to entry, limiting the scope of competitors engaged by the creditor, and thus did not find the non-compete targets to be overly broad or the two-year period excessive.

In other words, while the existence of compensation is an important consideration in determining the validity of a non-compete agreement, it cannot be concluded that the agreement is invalid solely because compensation has not been provided, and the various factors of the specific case must be considered together.

If the validity of a non-compete agreement is in question, please organize the specific circumstances of your case and consult with Attorney Eom Sang-yun.

Cheongchul Law Firm consists of attorneys from major law firms such as Kim & Chang, Lee & Ko, Bae, Kim & Lee, Shin & Kim, and Yulchon, as well as corporate legal teams from large enterprises, and is composed of specialized attorneys in fields related to each case rather than a single attorney. Cheongchul provides comprehensive solutions for overall business issues beyond resolving specific disputes, focusing on achieving what clients desire through legal consulting. If you need assistance in achieving your goals, do not hesitate to contact Cheongchul.