How to apply a non-compete clause in Thailand?

The non-concurrence clause is a clause inserted in the employment contract. It aims to limit the freedom of an employee to perform, equivalent functions with a competitor or on his account after the termination of his contract. Indeed, many employers devote significant resources to training their employees and acquiring professional experience that they do not want to see exploited by competitors. Therefore, to ensure that knowledge gained during employment remains confidential, employers use non-concurrence clauses as a mechanism to protect their interests and prevent former employees from disclosing proprietary information.

For example, an employer may include a non-concurrence clause in an employee’s contract that will be effective when the employee leaves his or her job. This clause may contain a prohibition on working for a competitor or setting up a business in a specific geographical area for a limited period.

In Thailand, non-compete provisions are governed primarily by Section 14/1 of the Labor Protection Act and the Unfair Contract Terms Act.

Firstly, the Labor Protection Act provides that :
“ for an employment contract between an employer and an employee, work rules, regulations or orders of an employer which provides that the employer has an unfair advantage over the employees, the court shall have the power to order that the employment contract, work rules, regulations or orders shall apply only to the extent that they are fair and appropriate to the circumstances.”

Secondly, the Unfair Contract Terms Act states that
“contract terms that are not void but that place a more significant burden on the person whose rights or freedoms have been restricted than a reasonable person could have foreseen under normal circumstances are enforceable only to the extent that they are fair and reasonable in the circumstances.”

Therefore, a non-concurrence clause is acceptable and enforceable under Thai law if it is not contrary to public policy and morality. The non-concurrence clause must also be fair and reasonable. Considerations must be based on the period and geographical area of restriction, the employee’s ability, and capacity to perform his or her job and any other parties’ legitimate interests.

Finally, it is important to note that the non-concurrence clause must not in any way have the effect of eliminating all employment opportunities for the employee.

The non-concurrence clause applies to the employee after his or her contract has ended. Therefore, the employee subject to this clause while the employer benefits from it.

For the non-concurrence clause to be valid and acceptable, it must take into account several criteria:

In general terms, non-concurrence clauses in an employment contract are accepted in Thailand. In determining whether a non-concurrence clause is permissible, the Thai courts consider the proprietary interest of the employer entitled to protection, the use of the non-competition clause must not be contrary to public interest and morality, and the conditions outlined in the clause must be reasonable.

The Thai courts will consider whether it is legitimate for the employer to prevent the potential disclosure of trade secrets and confidential information by a former employee. The employer will therefore have to prove that the purpose of the protection is to maintain the stability of the organization and that the breach of this obligation may cause damage to the organization.

According to the Thai Civil and Commercial Code, in determining whether an act is contrary to the public interest, Thai courts apply Section 150 of the Thai Civil and Commercial Code, which states that “An act is void if its purpose is expressly prohibited by law or is impossible or is contrary to public order or morality.“

Under Section 5 of the Unfair Contract Terms Act B.E. 2540, Thai courts examine the “reasonableness” of the non-concurrence clause.
This section states that “Clauses restricting the right or freedom to engage in an occupation or the performance of a legal act in connection with the enterprise, trade or business which are not void, but which place a greater burden on the person whose right or freedom has been restricted than would have been expected under normal circumstances, shall be enforceable only to the extent that they are fair and reasonable in the light of those circumstances”.

In determining reasonableness under Section 5, Thai courts consider all relevant circumstances of the employer’s situation and the relationship to the restrictions, the geographical area of the restrictions applied and the period of limitation of the occupational freedom.

The Unfair Contract Terms Act states that “contract terms which are not void, but which cause a person whose right or freedom has been restricted to bear a heavier burden than a reasonable person could have foreseen under normal circumstances, shall be enforceable only to the extent that they are fair and reasonable in the circumstances”.

Finally, it is also important to note that the restrictions contained in the non-concurrence clause cannot restrict the employee’s activities more than necessary, nor can they interfere with the employee’s ability to earn a living, considering that the Thai Constitution protects professional freedom.

When an employee does not respect the non-concurrence clause, this leads to the cancellation of the financial compensation. Moreover, because of this non-compliance, the employee may also have to pay damages. On the other hand, if an employer does not reimburse the financial compensation to which the employee is entitled, the employee will no longer be subject to the non-concurrence clause. The employer may be required to pay damages to the employee as compensation for the injury as the employee.

Although employment contracts often prohibit an employee from being employed by a competitor, there are certain complexities.
The general rule is that such provisions are void because they restrain trade. But there are some exceptions, a contractual provision will be in restraint of trade and unenforceable where an individual cannot earn a living or exercise his or her vocation. It is in the public interest to discourage restraints of trade and to maintain free competition. However, the courts have not limited the right to contract, particularly where that right has been exercised by knowledgeable persons with equal bargaining power. Moreover, an undertaking may be much more difficult to defend if it is directed against competition in general and not limited to specific acts.

The ex-employee will no longer be obliged to respect the non-concurrence clause if his ex-employer does not pay him the financial compensation to which he is entitled.
Moreover, if the clause does not protect the company’s interests, it will not be applicable.
Finally, the clause must not prevent the former employee from finding a new job and must not prevent him to provide for his needs.

In conclusion, a well-constructed employment contract with specific references to trade secrets, confidentiality and competition is essential in a highly competitive industry. Without these specific provisions, Thailand’s general employment laws offer little relief to an employer who has found himself in conflict with his former staff.