November 2, 2012
Noncompetition Provisions in Employment Relationships
Bangkok Post, Corporate Counsellor Column

Employers often have concerns about their employees competing with them after they leave. Many employers put substantial resources into training their employees and giving them valuable work experience. Thus, departing employees are a cause for concern in terms of potential loss of customers and business. To address this risk, many employers ask us whether they should include noncompetition provisions in their employment agreements, and whether such provisions are enforceable.

Noncompetes are governed primarily by Section 14/1 of the Labor Protection Act and the Unfair Contract Terms Act. Principally, noncompetes are enforceable in Thailand, subject to some restrictions.

The Labor Protection Act provides that, “for an employment contract between an employer and employee, work rules, regulations, or orders of an employer that provide for the employer to have an improper advantage over employees, the court shall have the power to order that such employment contract, work rules, regulations, or orders be applicable only to the extent that they are fair and appropriate in the circumstances.

Similarly, the Unfair Contract Terms Act stipulates that “contract terms that are not void but cause the person whose right or freedom has been restricted to shoulder more of a burden than a reasonable person could have anticipated under normal circumstances, shall only be enforceable insofar as they are fair and reasonable in the circumstances.”

In evaluating noncompetition provisions, Courts must consider the geographic scope of the area specified and the period of restriction of right or freedom. They must also consider the ability and opportunity of the employee to carry on his or her occupation or otherwise engage in business, as well as all legitimate advantages and disadvantages of the contracting parties.

In determining the extent to which terms are enforceable as fair and reasonable, courts will take all circumstances into account, including good faith, bargaining power, economic status, knowledge and understanding, adeptness, anticipation, guidelines previously observed, other alternatives, and all advantages and disadvantages of the contracting parties according to actual conditions; ordinary usage applicable to such kind of contract; time and place of performance or making the contract; and whether one party is made to bear a much heavier burden than the other.

The statute does not require employers to give additional consideration or other benefits to an employee or former employee during a noncompete period. However, it is possible that terms providing for such an arrangement may be included in an employee’s employment agreement, and that a departing employee may negotiate such an arrangement with his or her employer. In either case, the employer’s obligation to pay would be enforceable.

A noncompetition provision is acceptable and enforceable under Thai law as long as it is not contrary to public order and good morals, and is fair and reasonable. Considerations are to be based on:

  1. The period of restriction and the geographic area of restriction.
  2. The opportunity and ability for the employee to profess his or her occupation.
  3. All other lawful interests of the parties.

Thus, the Thai court will typically enforce a noncompetition provision, as long as it is lawful, is used to reasonably protect the employer’s business, and does not impose undue hardship on the employee.

As a general matter, enforcement of noncompetes is problematic with respect to professionals. For a doctor or lawyer, a noncompetition provision, depending on its scope, could easily have the effect of eliminating all opportunities to practise one’s occupation. Thus, a court would consider this within the context of the factors described above, with the likely result of modification of the term or not enforcing it at all.

When an employer seeks to enforce a noncompete, proving damages can also be difficult. While a noncompete may be enforceable, employers may face problems proving that the employee’s breach of the noncompete actually caused the employer to suffer economic damages. Moreover, given the time taken for the case to get to court, it is likely that, in many cases, the period of restriction may have already expired.

Several Supreme Court judgments have ruled that a restriction period of 24 months (without stated geographic restrictions) prohibiting an employee from directly or indirectly carrying out or engaging in businesses in competition with those of his or her employer, is justifiable and enforceable. In one case, the Supreme Court held that a noncompetition provision applicable to a foreign employee, with a restriction period of five years and geographic area of Thailand, Vietnam, Cambodia, Laos, and Myanmar, prohibiting the employee from directly or indirectly carrying out or engaging in businesses in competition with those of his employer, was justifiable and enforceable.

Thus, when crafting noncompete provisions, it is important to consider what a court would likely enforce. Generally, we would advise you to work with your counsel to carefully construct noncompete provisions, such that they specify a restriction period of not more than 24 months, within a specific geographic area. Importantly, the noncompete provision must not operate to eliminate any possibility of employment for the employee. While a court always has discretion, such an approach offers the employer a reasonable level of protection.

Related Professional
Pimvimol (June) Vipamaneerut
+66 2056 5588