Jan 14, 2015

Non-Compete Clauses in Employment Agreements in Korea

The enforceability of non-competition clauses in Korea is an area of contention, that, often, leads to enforcement actions via criminal and civil suits.  The criminal suits, usually, come in the form of an allegation of the expropriation of trade secrets. 

In general, carefully crafted non-compete clauses coupled with tailored actions leading to termination leads, typically, to the enforceability of non-compete obligations by Korean courts. 

The Korean Supreme Court in Case # 2009Da82244 (March 11, 2010) iterated a test to determine the enforceability of non-competition covenants in employment agreements in Korea. 

No factor, in of itself, is intended to be determinative, however, the Fourth Factor - not paying compensation to the employee in exchange for the execution of the covenant is considered, in most cases in Korea, the most important factor in the determination by Korean courts.

The Supreme Court of Korea noted that courts should analyses the following factors in determining if a non-compete covenant is "reasonable":
  1.  employee's position with the employer before termination of the employment of the employer (courts are more likely to enforce non-compete obligations against senior members of the company);
  2.  employer's specific interest to be protected by the non-competition covenant (courts are more likely to enforce non-compete covenants when the employee was a key figure in the company that could use trade secrets and other internal information to the detriment of the employer);
  3.  scope of the restriction (court's are more likely to enforce restrictions that are limited in time and geographic location);
  4.  whether compensation was paid in exchange for the execution of the non-compete covenant (typically this is the most important factor. Compensation may come in, also, non-monetary form.);
  5.  situation leading to termination of the employment of the employee (courts are less likely to enforce covenants in situations when termination was not based on cause or employee was pressured to resign); and
  6. public interest served by the enforcement of the non-compete covenant (the typical catch all).
Thus, typically, courts will deem the non-compete obligations not "reasonable" and either not enforce the agreement or reduce the term or geographic scope of the restrictive covenant if the facts leading to termination show:
  • fault on the part of the employer (e.g. no termination based on cause/pressured out of employment);
  • the employee was not a senior or key member of the employer; 
  • the employee did not have access to trade secrets or other important internal data of the company; and
  • no compensation was paid in exchange for the execution of the non-compete agreement
Other Korean Law Blog articles that may be of interest to the reader:
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.