Hello, this is Attorney Choi Jong-ha from the law firm Cheongchul.
Just as there are partings when there are meetings, the employment relationship with workers is also bound to end someday. Ideally, it would be great if both parties supported each other's futures, but in reality, true disputes often arise from the point of resignation. Especially for companies with key know-how or trade secrets, or in businesses where customer lists are crucial, it is impossible not to be on high alert about whether a departing employee will move to a competitor. This is because technologies that have required significant R&D investment, or customer lists that have been painstakingly secured through substantial marketing costs, can easily fall into the hands of competitors.
To prevent such situations, many companies include a non-competition agreement in the employment contract stating that ‘the employee cannot work in the same industry for one year after resignation’ or obtain a separate pledge. Are such non-competition agreements valid?
Our courts, in determining the validity of non-competition agreements, consider various factors comprehensively, including the freedom of workers to choose jobs, ① the user's interests that are worthy of protection, ② the employee's status before resignation, ③ the duration, region, and occupation of the non-competition restriction, ④ whether compensation is provided to the employee, ⑤ the circumstances surrounding the employee's resignation, ⑥ public interest, and other factors. In particular, ‘the user's interests worthy of protection’ not only refer to trade secrets under the unfair competition prevention act but also to knowledge or information uniquely held by the user that the employee has agreed not to disclose to a third party, as well as maintaining customer relationships or business reputations (Supreme Court, March 11, 2010, Decision 2009Da82244).
Looking at the relevant criteria in more detail, we can examine them as follows.
The user's interests worthy of protection - i) they must not be widely known in the same industry and have independent economic value, and ii) they must have been agreed upon with the employee to not disclose them to third parties through security pledges, etc. Customer information, transaction details, and know-how also fall under the interests worthy of protection if they meet the above criteria. Some degree of proof of non-publicity and confidentiality is required, but not to a strict level.
The employee's status and job content before resignation - The higher the status before resignation or the broader the scope of handling trade secrets, the more likely the validity of the non-competition agreement will be recognized. In general, it can often be argued that positions in research and development are closely related to non-competition obligations, and consideration of what job the employee will perform in their new company is also necessary.
The duration and location of the non-competition restriction - When the duration, region, and targets of the competition restriction are narrowly defined, their efficacy is more likely to be recognized, but if they are set excessively broadly, they may be considered an abuse of rights. In the most critical duration, the courts typically recognize a period of about 1 to 2 years.
Provision of compensation to the employee – This is a factor relating to whether the employee received something in return for complying with the non-competition obligation; the ‘compensation’ in this case does not only refer to monetary rewards.
Reasons for resignation - The validity is judged based on the reasons leading to resignation. For example, if a company unilaterally dismisses an employee without a particular reason, it becomes difficult to restrict that employee from seeking employment in the same industry.
Concerning the above criteria, it is ultimately the employer's responsibility to prove validity; therefore, it is necessary to be meticulous when entering into non-competition agreements.
Then, what actions can an employer take if an employee violates a valid non-competition agreement that meets these requirements? In general, the most commonly used measures are (1) claims for damages and (2) injunctions against competition (hiring ban). This involves compensating for damages through claims against the employee and pressuring for the protection of trade secrets, while also going through expedited protection procedures to prevent actual work. At this time, it is also possible to apply for hiring ban injunctions against the competitor that hired the employee, thereby imposing even stronger pressure.
