By Wei-Han Kuo, Partner of Formosan Brothers, Attorneys-at-Law, Hsinchu Office

Mr. A, Deputy Director of the R&D Department of Company X, has been working for the company for twenty years. Lately, Company Y, a major player in a different industry, intends to stretch its reach to compete with Company X and offers Mr. A a higher position and better compensation to try to recruit him. After Company X’s Chairman becomes aware of it, he tries to retain Mr. A without avail. He then demands that Mr. A shall follow the non-competition agreement and not be employed by Company Y. However, Mr. A did not follow. How should Company X seek legal remedy in this case?

Key to a favorable outcome in a non-competition lawsuit
A non-competition lawsuit is a lawsuit for the purpose of prohibiting an employee from working for a competitor. The key to a favorable outcome lies in the validity of the non-competition agreement between the employer and employee. According to Article 9-1 of the Labor Standards Act (hereinafter the “LSA”), a non-competition agreement should meet the following criteria for it to be valid: (1) The employer has proper business interests that warrants protection. (2) The position or job of the employee gives him or her access to or enables him or her to use the employer’s trade secrets. (3) The non-compete limitation shall not exceed a reasonable range with respect to the period, area, scope of occupational activities and prospective employers. (4) The employer shall reasonably compensate the employee concerned who does not engage in business strife activities for the losses incurred by him or her. In addition, the reasonable period of non-competition shall be no greater than two years.

In addition, in practice, one should pay special attention to the fact that Article 9-1 of the LSA was implemented after its promulgation on December 16, 2015. However, many high-level managers who hold highly valuable trade secrets of the company have been employed for ten or more years. That is, when they entered into a non-competition agreement with their companies, the legislators had not formulated Article 9-1 of the LSA, and, in general, the content of the non-competition agreement made at that time was not in conformity with the provisions in Article 9-1 of the LSA. Yet, judicial opinions hold that Article 9-1 of the LSA shall still be the basis for determining the validity of non-competition agreements made earlier than the promulgation of the provision. This is something one needs to be aware of.

Moreover, to the employers, litigations often take a long time and cannot stop the employees from engaging in activities that violate the non-competition agreement in time. To solve this problem, an employer may consider seeking emergency relief by applying for an injunction maintaining a temporary status quo to ask the court to rule that the employee shall not be employed by the competitor of his/her original employer within a certain period, and, after such an application, file a non-competition lawsuit against the employee. Since the court does not conduct a substantive adjudication for an injunction maintaining a temporary status quo as it would do for a lawsuit, the outcome is usually more favorable to the employer. Hence, when the employer asks the court to rule that the employee is “temporarily” prohibited to work for its competitor, the purpose of non-competition may be served.

Regarding Mr. A’s employment by Company X against his non-competition agreement with Company X, Company X may file a non-competition lawsuit. And, to prevent Mr. A from being employed by Company Y before the lawsuit is final, making the lawsuit lose its actual benefit, Company X may apply for an injunction maintaining a temporary status quo to bar Mr. A from working for Company Y. But since Article 9-1 of the LSA was not yet provided when Mr. A was first hired by Company X, the crux of the lawsuit may lie in whether Company X, following the amendment of the LSA, has signed a new non-competition agreement in conformity with Article 9-1 of the LSA. In other words, an executed agreement is not a “lifetime warranty.” It needs to be reviewed and revised regularly along with any amendment of the law, so that the agreement may be effective as it is supposed to.

(This article was published in the Expert’s Commentary Column of the Commercial Times：https://view.ctee.com.tw/legal/34650.html）

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