[according to the law of authority] 52. "No competition," Freedom of career choice vs. protection of sales

*This content was translated by AI.

"People" and "Knowing". It's two big pillars of business.

However, if a partner leaves and takes core technology, or if a painstakingly nurtured employee opens a similar store right next to it, the manager feels threatened. At this time, it is the prohibition of competition (競 industry 禁止) that can act as the most powerful defense mechanism.

Prohibition of competition means restricting a specific person from operating the same business in a specific area for a certain period of time. In some cases, this obligation naturally arises under commercial law ("legal obligation") and in some cases, it arises by agreement between the parties ("agreement obligation"). In practice, fierce legal battles often take place over the effectiveness of this 'promise'. This is because 'freedom of choice' guaranteed by the constitution and 'protection of business rights' of users collide head-on.

Business transfer and no competition: the legal weight hidden in the 'right money'

Article 41 of the Commercial Act is often overlooked when signing a business transfer contract. Even if there is no separate agreement, a person who has transferred the business will be prohibited from doing the same business in the same or adjacent cities and counties for 10 years. If the agreement was made, the period could be extended to 20 years.

The key here is whether or not it has the substance of 'business transfer'. The precedent believes that not only assets should be transferred, but 'functional property' that organically combines human and physical organizations should be transferred. In one ruling, the transfer of business was recognized in the case of succession of karaoke facilities and employee employment, and it was clarified that if the transferee closed the business, the transferor's obligation to ban competition would also lapse after the closure.

Prohibition of competition in labor relations: Is 'no change of job agreement' all-around?

The most controversial area is by far the issue of changing jobs for retired workers. Many companies receive a pledge of "no employment in the same industry for n years after retirement" when they join the company, but this is not always valid. The Supreme Court believes that if the competition prohibition agreement excessively violates the worker's right to live, it can be invalidated under Article 103 of the Civil Code (violation of social order).

Key Checklist for Validity

①Are there any benefits worth protecting? There should be special know-how or customer relationships unique to the company, not just proficiency.

②Has the competition prohibition arrangement been paid for? It is one of the most important factors. Instead of prohibiting competition, whether a separate allowance or compensation is paid becomes a measure of effectiveness.

③Is the scope of the ban reasonable? If the period is too long (usually around one to two years is appropriate), or if the region is broad, such as targeting the world, the court reduces or invalidates it.

In fact, in the field of power generation, which is a technology-intensive industry, there are cases in which the validity of contracts has been widely recognized for global technology protection, while the human network of general salespeople has low protection value.

Characteristics of franchise contract (franchise): Different standards from labor relations

The ban on competition between franchisees and headquarters tends to be interpreted in favor of the headquarters a little more than labor relations. This is because the trademark rights provided by the franchise headquarters and the unified business method itself are key assets. A ruling recognized the obligation to pay a penalty of 40 million won for a case in which a jjimdak franchisee operated the same business at the same place immediately after the contract was terminated. This is because the risk of leakage of know-how from the franchise headquarters and the possibility of stealing commercial districts were high. Therefore, if you are a franchisee, you must be careful about the scope of regional and time limits when changing the business type after the contract is terminated.

Relief and compensation in case of violation

If the competition prohibition agreement is violated, the other party may force the suspension of business through the prohibition of competition and claim damages. At this time, the penalty specified in the contract is presumed to be "the scheduled amount of damages", and the court has the authority to reduce it in consideration of the debtor's economic status. In fact, there is also a high court precedent that shortened the three-year competition ban to one year and reduced the amount of compensation.

No competition is a double-edged sword. While it is a shield for companies to protect their assets, it can be a window into individuals' freedom of work. Since the party claiming the validity of the agreement (user, transferee) must prove the value of protection, a strategy to specify the target of protection and design reasonable compensation from the contract signing stage is essential.

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*This content was translated by AI.