Hello, I am Attorney Eom Sang-yoon from the Law Firm Cheongchul.
Today, we will discuss the validity of non-compete agreements.
[Question]
An executive who signed a non-compete agreement has been confirmed to be employed by another competitor before the non-compete period has expired. What measures should be taken to prevent this?
[Answer]
A 'non-compete agreement' is a contract stipulating that an employee will not engage in competitive activities such as getting employed by a company that competes with the employer or starting and operating a competing company.
Judicial precedents have taken the position that non-compete agreements directly restrict the freedom of occupation, interfere with free competition, and are directly related to the livelihood of workers, thus requiring strict judgment regarding the existence of such agreements (Supreme Court 2002Ma4380).
Meanwhile, the company can apply for a provisional injunction against executives or employees who are currently working for or are likely to work for a competing company to prevent damage caused by the departure of key personnel to competitors. Such a provisional injunction can be applied for as one of the necessary measures to prohibit or prevent acts that infringe on trade secrets and unfair competition under Article 10 (1) of the Act on the Prevention of Unfair Competition (“Unfair Competition Prevention Act”), even if there is no specific agreement concerning non-compete (Supreme Court 2022Ma4380).
[Example of Non-Compete Agreement] ① The resigning employee shall not be employed by a company or organization competing with the company for 2 years after resignation nor establish a similar company or organization. ② The resigning employee must obtain prior written consent from the company before being employed by or establishing a company or organization that falls under the non-compete clause in the preceding paragraph. |
[Example of Provisional Injunction Application for Non-Compete] 1. The debtor shall not engage in business or any related duties, including entering into an employment, co-partnership, consulting, or service contract with Company A until 2024. ##. ##. 2. If the debtor violates the obligation stated in paragraph 1, they shall pay the creditor 10,000,000 won for each day of violation. |
However, the precedent states that 'if a non-compete agreement excessively restricts workers' freedom of occupational choice and labor rights guaranteed by the constitution or excessively restricts free competition, it is deemed invalid as a legal act against good morals and social order as defined in Article 103 of the Civil Code.' Thus, it is judged considering various factors such as the merits of the employer worth protecting, the employee's position before resignation, the period, area and target occupation of the non-compete, whether compensation was provided to the employee, the circumstances surrounding the employee's resignation, the public interest, and other circumstances (2009Da82244).
Additionally, the period of the non-compete should also be limited to a reasonable range according to the court's view. For instance, in a case where a researcher from a company engaged in the manufacturing and sales of semiconductors and related products changed jobs to a competing overseas company, the court stated, 'The non-compete agreement in this case prohibits the debtor from changing jobs for at least 2 years from the date of resignation; (...) ① The speed of technological development in the semiconductor industry is very rapid, and new technologies are being mass-produced within 1 year or 6 months, thus it is difficult to conclude that there is a 2-year technology gap between the creditor and C in the D memory field. ② Considering the debtor's age, education, and experience, it seems challenging for the debtor to find employment outside of semiconductor design and production. Given these, the 2-year non-compete period in this non-compete agreement may be considered excessively long, posing a risk of overly infringing on the debtor's freedom of occupational choice and right to livelihood.'
Therefore, before applying for a provisional injunction, the validity of the non-compete agreement should be reviewed, and the practical benefit of the injunction application should be examined. Furthermore, separately from the injunction, it is necessary to limit the scope of the non-compete to substantial content in the agreement drafting, specifically outlining the interests the company seeks to protect, based on the work the resigning employee handled. The provision of compensation to employees who have signed a non-compete agreement is also a factor in determining validity; thus, appropriate compensation must be provided for essential personnel to enhance validity.
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