Newsletter
Pre-announcement of Amendments to Enforcement Rules of the Labor Standards Act: Requirements for a Post-employment Non-competition Agreement to be a Valid Agreement
Article 9-1 of the Labor Standards Act ("LSA") regarding "post-employment non-competition agreement" took effect on 18 December 2015. A post-employment non-competition agreement reached on or after the effective date should be void if any stipulation/provision thereof is not compliant with Paragraph one, Article 9-1 of the LSA which sets forth the following criteria:
(1) The employer has legitimate operating interests that need to be protected.
(2) The employee concerned may have knowledge of or use the trade secrets of the employer due to his/her duties or position.
(3) The restrictions on the period, area, scope of occupational activities and potential employers are reasonable ("Restrictions").
(4) The employer ptovides reasonable compensation for the employee's lossfrom having to observe the post-employment non-competition obligations ("Compensation").
On 4 February 2016, the Ministry of Labor (MOL) pre-announced a draft amendment to the Enforcement Rules of the LSA (Articles 7-1 to 7-3) to prescribe the requirements of a post-employment non-competition agreement in response to Article 9-1 of the LSA, including the following key issues:
1. A post-employment non-competition agreement should be in writing
A post-employment non-competition agreement should be in writing and include the requisite detailed information stipulated in Items 3 and 4, Paragraph one of Article 9-1 of the LSA. The agreement should be signed by an employer and an employee in two copies as evidence.
2. The scope of Restrictions should be reasonable
The Restrictions should comply with the following requirements and should not constitute an unfair obstacle to the right to work:
(1) The restrictive period should not be longer than a reasonable period or two (2) years maximum.
(2) The restrictive area(s) should be limited to where the employer has specific business operations.
(3) The scope of restrictive occupational activities and potential employers should be limited to those having the same or similar business which is in competition with the employer.
3. The amount of Compensation should be reasonable
The Compensation should be exclusive of the payments the employee received or is entitled to receive for the work performed during the term of employment and should be agreed to be pre-paid in a lump-sum or on a monthly basis by taking the following factors into consideration:
(1) The monthly Compensation should be no less than 50% of the employee's average monthly salary prior to the termination of employment.
(2) The Compensation should be sufficient to cover the employee's living expenses.
(3) The Compensation is equivalent to the employee's loss during the restriction period.
(4) The Compensation is reasonable in response to the Restrictions.
According to the MOL, the above draft amendment to the LSA Enforcement Rules is expected to take effect sometime in June 2016. In addition, the MOL announced on 14 January 2016 that the "Guidelines on Post-employment Non-competition Agreement" of 5 October 2015 should become inapplicable as from the same day i.e., 14 January 2016.