Asia: Post-employment Restraints

Questions

Japan

India

Malaysia

Philippines

South Korea

Are post-employment restraints enforceable?

Yes, provided the post-employment restraint are deemed reasonable.

Under Japanese law, a non-compete restraint is considered invalid as a violation of public order and morality under Article 90 of the Civil Code if the covenant is not deemed reasonable in light of the following factors:

• the purpose of imposing the non-compete restraint;
• the employee's position;
• the extent to which the employee is prohibited from changing jobs (ie, the scope of the non-competition restraint); and
• the existence of compensatory measures.

In considering the scope of the non-competition restraint, the Japanese courts will have regard to factors such as scope of activities prohibited, geographical area covered by the restraint and duration.

Unlike non-compete restraints, non-solicitation restraints are more likely to be valid and enforceable as they do not restrict an individual's freedom of choice of occupation and are therefore less likely to be inconsistent with constitutionally guaranteed rights. There are however limited cases where non-solicitation restraints are held to be invalid as the manner in the which the non-solicitation was done was unreasonable.

Post-employment non-competition restraints are generally void and unenforceable in India.

Under section 27 of the Indian Contracts Act, 1872, every agreement by which by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, is to that extent, void, although there is a specific exception in a sale of the goodwill of a business

While non-solicitation restraints are not void, they are difficult to enforce in India. Even when they have been upheld, courts typically only award damages to the employer and do not issue protective orders prohibiting employees, customers or suppliers from moving to the soliciting party.

Post-employment non-competition restraints are generally void and unenforceable in Malaysia.

Under section 28 of the Malaysian Contracts Act 1950, any agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, is to that extent, void, although there are specific exceptions that apply in a sale of the goodwill of a business and to agreements made between partners during the continuance or dissolution of partnership.

While non-solicitation restraints are not void, they are difficult to enforce in Malaysia.

Yes, post-employment restraints are valid and enforceable if they contain reasonable limitations as to time, trade or activity, and place.

The restraint must be reasonable and not greater than necessary to protect the employer's legitimate business interests. In determining the reasonableness of a restriction, courts consider whether:

• the restraint protects a legitimate business interest of the employer; creates an undue burden on the employee; or is injurious to public welfare;
• the duration and geographical area covered by the restraint are reasonable; and
• the restraint is reasonable from the standpoint of public policy.

Yes, but with limitations.

South Korean law recognises that post-employment covenants restrict employees' freedom to choose their occupation and their right to employment. As such, these covenants will be read to restrict an employee's right to work only to the extent reasonable.

Factors taken into account to determine reasonableness may include, for example, the duration and geographical extent of the restriction, whether the employee is compensated for the restraint, the employee's position pre-resignation or termination, and the reason for any resignation.

Are employers required to pay employees wages during the restraint period?

Although not required by law, in practice, the Japanese courts will take into account whether the employee is paid during the restraint period when determining reasonableness.

No, but paying wages during the restraint period may deter employees from breaching the non-solicitation obligation.

No, but paying wages during the restraint period may deter employees from breaching the non-solicitation obligation.

No, but paying wages during the restraint period may deter employees from breaching their non-competition/non-solicitation obligations.

Although not required by law, in practice, the South Korean courts will take into account whether the employee is paid during the restraint period when determining reasonableness.