Non-Compete Clauses in Employment Agreements in Korea

The enforceability of non-competition clauses in Korea is a contentious area that frequently leads to enforcement actions through criminal and civil suits. The criminal suits usually come in the form of an allegation of the expropriation of trade secrets. 

Generally, carefully crafted non-compete clauses, coupled with tailored actions leading to termination, typically result in the enforceability of non-compete obligations by Korean courts. 

Korean Non-Compete Clauses in
Employment Agreements in Korea

Korean Supreme Court on Enforceability of Korean Non-Compete Clauses

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

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 analyze 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 (courts 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 also come in 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 the employee was pressured to resign); and
6. public interest served by the enforcement of the non-compete covenant (the typical catch-all).

Thus, typically, Korean 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:

• IPG’s Labor & Employment Law Team: Proactive, Efficient & Non-conflicted
• Korean Rules of Employment Necessary
• Choice of Law Issues in Employment Disputes
• Restrictive Covenants in Korean Employment Agreements
• Korean Labor Law Check List for Employers in Korea

Sean Hayes 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 the only non-Korean lawyers as a Top Attorney by AsiaLaw, and IPG Legal is consistently ranked Top Dispute Resolution Law Firm for our litigation services.

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