1..Is it correct that the VIAC has the authority to settle disputes related to the agreement that the Employee will not work for the Employer’ competitors in a period after the resignation (“Non-compete agreement”)?
The VIAC is an arbitration centre that operates according to the Commercial Arbitration Law and relevant guiding documents. So, the VIAC has the authority to settle the disputes arising from: (i) commercial activities; (ii) disputes in which at least one party has commercial activities; and (iii) other disputes. With respect to the authority to settle disputes over the Non-compete agreement, there are now two points of view:
- According to the first point of view, the Non-compete agreementswill be considered as a civil agreement that relates to commercial competition and is completely independent of the LC. In other words, if a dispute arises from the Non-compete agreements, it will not be considered a labour dispute but a civil dispute in which one party (Employer) has commercial activities. Thus, the VIAC definitely has the authority to settle disputes over the Non-compete agreementif the parties agree that the agency to settle disputes is the VIAC. In practice, cases with the same nature have been accepted by the VIAC and arbitral awards have been made. In practical legal proceedings, when settling disputes over the jurisdiction of the VIAC in similar cases, some Courts also maintain the above point of view.
- On the other hand, the second point of view contends that the Non-compete agreements arise from the employment relationship, so it must be considered an integral part of the LC. Therefore, disputes over the Non-compete agreements may not be considered civil disputes which can be settled under the jurisdiction of the VIAC even though the parties choose it as the dispute-settling agency.
2. If the VIAC has the authority to settle the dispute, is the arbitral award forcing the Employee to pay compensation to the Employer against Article 10 of the Labour Code and Article 9 of the Employment Law with respect to the Employee’s freedom to engage in any employment?
Similar to the matter of the VIAC’s jurisdiction as mentioned above, whether the Non-compete agreements violate the Employee’s freedom to engage in any employment or not is still being debated. Accordingly:
- The first point of view refers to a principle of civil law that agreements are made based on voluntariness, equality, goodwill, cooperation and honesty; therefore, the fact that the Employee signs an agreement in restraint of competition is construed as they voluntarily renounce his or her freedom to engage in employment specified in Article 10 of the Labour Code and Article 9 of the Employment Law. Thus, when Employee violates the agreement, he or she is obliged to compensate the Employer as agreed.
- Nevertheless, the second point of view contends that the Non-compete agreements preventing the Employee from working for the Employer’ competitors in a certain period after resignation violates the Employee’s freedom to engage in employment specified in Article 10 of the Labour Code and Article 9 of the Employment Law. Although the parties are free to enter into agreements and the Employee is fully aware of the consequences of the Non-compete agreements, the Employee has no choice but to sign that agreement to be able to sign the LC with the Employer because he or she in a weaker position than the Employer in negotiating the LC. Furthermore, Non-compete agreements are signed within the term of the LC so these agreements must be considered an integral part of the LC; therefore, it arises from the employment relationship. As a result, the acceptance of non-compete agreements will, in the spirit of the Labour Code and the Law on Employment, seriously violate the Employee’s freedom to engage in employment.
If the second point of view is accepted, the Employee’s right is better protected, who are in a weaker position in the employment relationship. However, this point of view cannot preserve fairness in a civil relationship in general. This can tremendously affect healthy competition in light of the fact that the Employer cannot control the disclosure of trade secrets from former Employee though the Non-compete agreements have been signed.
Since there is still much controversy over the jurisdiction to settle disputes and the contents of the Non-compete agreement, the legal risk of signing such agreements is inevitable. Particularly for the subsidiaries of multinational corporations, the Employer should consider and communicate possible legal risks to their corporations before signing the non-compete agreements with the Employee.
Article 2 of the Commercial Arbitration Law