[According to the Law of Expediency] Will It Be Subject to the Non-Compete Obligation?

*This content was translated by AI.

There is a dispute that invariably arises when buying or selling a business, dividing a jointly cultivated enterprise, or leaving a company to forge a new path.

It is a dispute surrounding the non-compete obligation: "Do not compete again in the same industry in a nearby location." However, there is considerable misunderstanding regarding when, how, and to what extent this obligation arises.

First is the assignment of a business. Article 41 of the Commercial Act stipulates that a person who assigns a business shall not engage in the same type of business within the same city, county, or adjacent city or county for 10 years, unless otherwise agreed. If agreed upon by contract, it is valid for up to 20 years. If the assignor immediately starts the same business nearby, the assignment itself becomes meaningless, and the assignee would suffer undue harm. This obligation prohibits not only direct engagement by the assignor but also using a third party to do so, and even if the business is transferred again, the violation persists as long as the substance remains. However, the key to application lies in whether the transaction qualifies as "assignment of a business" as defined by law. Courts examine whether the assignee has taken over the source of profit, which is functionally organized property, and continues the business previously conducted by the assignor. Therefore, in a case where only the facilities were transferred without the core facility, an aquarium, the court ruled it was not an assignment of a business. Conversely, in cases where a Korean buffet restaurant, a real estate brokerage office, or a beauty salon was transferred and the same business was resumed nearby, violations were recognized, and in the beauty salon case, compensation for mental distress was also awarded.

Second is the employment contract. During employment, non-compete activities are restricted as part of the duty of loyalty, even without a separate agreement, and violation constitutes grounds for disciplinary action or termination. However, post-employment non-compete restrictions directly limit the freedom of occupational choice and are therefore not recognized in principle without an explicit agreement. Even with an agreement, it is not automatically valid. The Supreme Court evaluates reasonableness by comprehensively considering the employer's protectable interests, the employee's status, the duration, geographic scope, and industry of the restriction, the presence of compensation, the circumstances of resignation, and the public interest. If deemed excessive, it is considered void under Article 103 of the Civil Act. In one case, a "one-year post-employment" agreement for a high-tech researcher was deemed valid but limited to one year. In another case, a contract clause only restricted concurrent employment during the term of employment, so it could not be construed as a post-employment non-compete restriction.

Third is the partnership or shareholder agreement. While non-compete obligations can arise through explicit or implied agreements, lower courts hold that the provisions on business assignment (Article 41 of the Commercial Act) cannot be directly applied when a partnership relationship is dissolved. For corporations, Article 397 of the Commercial Act restricts directors' non-compete activities, but this does not apply to partners or employees who are not directors.

At this point, it is necessary to clarify two concepts often confused. A "trade secret confidentiality agreement" prevents the disclosure or use of information but does not prohibit engaging in the same type of business itself. In principle, the obligation to keep secrets does not imply a restriction on working in a specific industry. However, problems arise if trade secrets are leaked or used within that industry. A "prohibition on concurrent employment clause" primarily prevents holding another job during employment; its timing and purpose differ from non-compete restrictions that prohibit engaging in the same business after termination or resignation.

Ultimately, non-compete restrictions are not blanks automatically filled by law but are more often agreements between parties. When buying or selling a business or starting a partnership, the duration, geographic scope, scope of restriction, and liquidated damages should be clearly stated in the contract. Conversely, those about to start anew must verify the actual content of their obligations not by the title but by the specific clauses themselves.

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*This content was translated by AI.