Services / Labour and employment
Signed a non-compete: how far does it bind you?
A covenant against joining a competitor is neither void as a whole nor enforceable exactly as written. The statute takes a middle course, giving it effect so far as fair and reasonable, which means these cases turn on the detail.
The provision that governs
The first paragraph of section 5 of the Unfair Contract Terms Act B.E. 2540 (1997) provides that an agreement restricting the freedom to work, or to enter transactions relating to trade or a profession, which is not void but places on the restricted party a greater burden than could normally be expected, has effect only so far as is fair and reasonable in the circumstances.
What the court weighs
The second paragraph names what is to be weighed: the geographic and temporal scope of the restriction; the restricted party's ability and opportunity to work, or to transact in another form or with other people; and all the lawful interests of both parties. Those three form the frame of the argument, whichever side one is on.
Not void, but cut down
The first paragraph speaks of an agreement that is not void, and then gives it effect only so far as fair and reasonable. That is a different structure from voidness. In practice a very wide restriction may be reduced in scope rather than struck out. An employee assuming the clause is worthless is therefore taking as much risk as an employer assuming it binds exactly as drafted.
What makes a covenant too wide
The recurring problems are a ban covering the whole Kingdom without regard to where the employer actually operates, a duration longer than the interest being protected, and a bar on a whole line of work rather than the part that overlaps with what the employee had access to. Those three map exactly onto what the second paragraph directs the court to weigh.
Before signing, and before moving
Before signing, what can genuinely be negotiated is the area, the period and the definition of the restricted business, which are usually drawn wider than needed because the form was copied. Before moving, the clause is worth rereading against the actual new role to see where it really overlaps, since in many cases the new work does not fall within the words at all.
PREPARE
What to bring
- The employment contract and any annex containing the covenant
- Your former role and what you actually had access to
- The new role and where it genuinely overlaps
- Where the former employer actually operates
- Any warning or letter from the former employer
QUESTIONS
Questions this raises
I signed without reading it. Can I still argue?
Section 5 does not turn on whether the clause was read. It turns on whether the agreement places a greater burden than could normally be expected, and gives it effect only so far as fair and reasonable. Having signed therefore does not close the door; what has to be assembled are the facts the second paragraph directs attention to.
My former employer has written telling me not to start the new job.
A letter from a former employer asserts a contractual right; it is not an order with force of its own. What to do is compare the words of the covenant against the actual new role, and consider the area and period under the second paragraph of section 5, before deciding. Simply complying without checking can cost the job where the clause would not have bound in full.
LAW
The legislation
- Unfair Contract Terms Act B.E. 2540 (1997), section 5
- Labour Protection Act B.E. 2541 (1998)
ENQUIRIES
