Non-competition cases are common in labor disputes, but they can be complex. This article will simplify things by breaking down the four key factors that should be examined when analyzing non-competition cases. These factors are: 1) the non-competition agreement itself, 2) compensation and penalties for breach, 3) whether the agreement has been violated, and 4) the agreement’s validity, termination, and consequences. We will use real-life examples to illustrate each point.n

Reviewing Non-competition Agreements

Review whether a non-competition provision exists.

Non-competition clauses are generally found in employment contracts or confidentiality agreements and include provisions for non-competition compensation (i.e., employers providing employees with economic compensation on a monthly basis during the non-competition period after termination of the employment contract) and penalties (i.e., employees should pay penalties to the employer as stipulated if they violate the non-competition agreement).

Review who the non-competition provision applies to.

Non-competition clauses typically apply to senior management personnel, senior technical personnel, and other personnel with confidentiality obligations. Ordinary employees, salespersons, and other employees who have access to internal business information may also be subject to non-competition clauses.

Review the scope and territory of the non-competition provision.

Key factors to consider include the employer’s business scope, geographic scope (local or national, cross-border) and the employee’s position and rank (ordinary employee or executive). For example, it is reasonable for a cross-border enterprise employer to sign a non-competition agreement with an Asia-Pacific regional director within the Asia-Pacific region. However, it is not reasonable for a cross-border enterprise employer to sign a non-competition agreement with an ordinary business employee within the Asia-Pacific region.

Review the duration of the non-competition provision.

According to the law, the duration of non-competition should be two years after the termination of the employee or termination of the employment contract. If it exceeds two years, the excess part is invalid.

Reviewing Non-competition Compensation and Liquidated Damages

Review whether a non-competition provision exists.

Non-competition clauses are generally found in employment contracts or confidentiality agreements and include provisions for non-competition compensation (i.e., employers providing employees with economic compensation on a monthly basis during the non-competition period after termination of the employment contract) and penalties (i.e., employees should pay penalties to the employer as stipulated if they violate the non-competition agreement).

Review who the non-competition provision applies to.

Non-competition clauses typically apply to senior management personnel, senior technical personnel, and other personnel with confidentiality obligations. Ordinary employees, salespersons, and other employees who have access to internal business information may also be subject to non-competition clauses.

Review the scope and territory of the non-competition provision.

Key factors to consider include the employer’s business scope, geographic scope (local or national, cross-border) and the employee’s position and rank (ordinary employee or executive). For example, it is reasonable for a cross-border enterprise employer to sign a non-competition agreement with an Asia-Pacific regional director within the Asia-Pacific region. However, it is not reasonable for a cross-border enterprise employer to sign a non-competition agreement with an ordinary business employee within the Asia-Pacific region.

Review the duration of the non-competition provision.

According to the law, the duration of non-competition should be two years after the termination of the employee or termination of the employment contract. If it exceeds two years, the excess part is invalid.

Reviewing Whether there is a Violation of the Non-competition Agreement

Provisions on Employee Behavior and Burden of Proof in the Non-competition Agreement

The main restriction on employees in the non-competition agreement is that after the termination or termination of the labor contract, they are not allowed to engage in the following activities: (1) work for other employers who have a competitive relationship with the employer in producing or operating similar products or engaging in similar business; (2) start their own business producing or operating similar products or engaging in similar business.

Among them, “similar products, similar business, and competitive relationship” should be proven by the employer. The employer can prove it through the business scope stated in the business license or through investigations of the products in stores or factories, explanations of products or businesses on company web pages, and testimony of shared customers.

Situations Where the Employee Has Not Actually Signed a Labor Contract

Employees may evade punishment by signing a labor contract with Company B, which has no competitive relationship with their original employer, but actually working for Company A, which has a competitive relationship with their original employer. Or they may engage in restricted activities in a concealed manner. In this case, it is necessary to carefully review and try to determine the objective fact.

Performance Period of the Employee’s Non-competition Obligations

If the employee violates the non-competition agreement and pays the liquidated damages to the employer, the employer can still require the employee to continue to perform the non-competition obligations.

Case analysis

• Case brief: The employer and the employee agreed that if the employer notifies the employee to fulfill the non-compete obligation before or within one month after leaving the job, the employee must comply. The employee left the company half a month ago and has already joined a new company. The previous employer has issued a notice requiring the employee to fulfill the non-compete obligation. Does the employee need to fulfill this obligation after leaving the new employer?

Legal Analysis

• The employee needs to fulfill the non-compete obligation.
• Reasoning:
• The employer did not exceed the agreed period for notifying the employee to fulfill the non-compete obligation (i.e., one month), and the employer did not exceed the legally prescribed period of three months for compensating for non-compete restrictions, which gives the employee the right to terminate the non-compete agreement.
• It is difficult for the employee to prove that the employer notified them to fulfill the non-compete obligation maliciously.
• The non-compete clause is not significantly unfair, as it provides both the employer and the employee with freedom. If there were no such clause, the employee would have to wait for three months without payment of compensation to terminate the non-compete agreement.
• The employee has several remedies: (1) refuse unreasonable terms when signing the agreement; (2) challenge the unreasonable terms upon leaving the company; (3) before starting the new job, wait for one month or inquire if the previous company requires them to fulfill the non-compete obligation to protect themselves.

Consequence Analysis:

• Since the employer notified the employee after the employee joined the new company, the employee can be exempt from any breach of contract during the period they have been with the new employer. However, the employee must resign and fulfill the non-compete obligation after receiving the notice.
• The employee can claim non-compete compensation for the waiting period of one month, as waiting itself is a way of fulfilling the non-compete obligation, even if the parties did not agree on it in advance.