Striking the right balance of employer-employee interests

Thai law does not prohibit the parties from entering into a non-competition agreement, nor does it prescribe any specific terms and conditions for such an agreement. Rather, as a matter of freedom of contracts, it is up to the parties to agree on the terms and conditions as they deem appropriate. 

Thai courts have consistently upheld that non-competition restrictions are valid and enforceable under Thai law so long as they are fair and reasonable and do not overly impose burdens on the employees. If the employee does breach these restrictions, the former employer can file a claim against them. The employer can also request the court to order the employee to stop the breach by, for example, immediately ceasing to work for the employer’s competitor.

There are numerous cases in which Thai courts have ordered such employees to pay damages. However, damages awarded in most cases are usually limited, discouraging employers from filing a lawsuit. Moreover, the non-competition period is generally limited to around 1-2 years post-termination, and the court procedure normally lasts that long. By then, it’s pointless for the court to order the employee to refrain from working for the former employer’s competitor since the non-competition period has already expired.

But a ruling of the Supreme Court in 2014 took an interesting turn. 

In this case, the employee agreed not to start or work in a business similar to that of the employer anywhere in Thailand for a period of three years after the end of employment, and from performing certain acts, such as soliciting the employer’s customers. The employee resigned in February 2009 and had indeed been engaged in a business with one of the employer’s competitors. A lawsuit was filed. In addition to claiming damages, the employer also asked the court to order the employee to stop working for competing businesses in the Bangkok area for three years starting from the date of the court’s decision – a restriction which goes well beyond the scope of the non-competition clause in the agreement.

In its ruling, the Supreme Court ordered compensation payment and also ordered that the employee be restricted from working for the employer’s competitors in the Bangkok area for two years from the date the court issues its decision. The court basically extended a non-competition period from three years post-employment specified in the agreement (which had already lapsed in 2012) to two years after the ruling (which will lapse in 2016). 

This unprecedented ruling may pave the way for a more effective and practical implementation and enforcement of non-competition clauses by courts in order to protect an employer’s legitimate interests.

It remains to be seen whether or not the court in future cases will give much consideration to this ruling, especially when the facts will be different and the damages incurred as a result of the employee’s breach in other cases may not be as clear-cut. Moreover, this particular court ruling may also raise some other interesting and unresolved questions, including whether the court went too far in extending a non-competition period well beyond what had been contractually agreed on by the parties; who will be responsible if the employee decides to immediately resign from a new employer thus causing damages to them. 

There remain many challenges associated with effectively enforcing the clauses in practice. For example, if the employee does breach the clauses, the most effective way for the employer to remedy such a breach will be to immediately put a stop to the employee’s action. Unfortunately, the court has so far been reluctant to issue an injunction order to protect the employer.

It is interesting to see how the courts in future cases will effectively strike the right balance of employer-employee interests.

 

Suriyong Tungsuwan, Partner and Head of Employment Practice, Baker & McKenzie 

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