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COMPENSATION CLAUSES NOT ESSENTIAL IN NON-COMPETITION AGREE-MENTS
A non-competition agreement is common be-tween an employer and an employee. Such agreement usually stipulates that during the pe-riod of employment and for a specified period after leaving employment, the employee will not take up employment with a competitor, or make use of technical or business information acquired in the course of his employment with the original employer to compete with the original employer.
Article 562 of the Civil Code and Articles 32, 39, 54, 108, and 209 of the Company Act contain express provisions prohibiting competition by persons holding specific positions. However, legislation currently in force has no express provisions regarding restrictions on competition for other employees during their employment, or for any employee after leaving employment, that might provide guidance when drafting or inter-preting a non-competition agreement.
According to the majority of past court decisions, when examining the validity of a non-competition agreement, it is necessary to consider the following four factors: (1) the em-ployer must have an existing interest that is protectable under the non-competition agree-ment; (2) the employee must have held an im-portant operational management position with the employer; must be aware of the employer''s legitimate interest, or possess special abilities or skills; and must have had access to the em-ployer''s relevant confidential information; (3) the restrictions placed on the employee in terms of types of work or business, geographical area, and professional activities, and the duration of such restrictions, must be reasonable in scope and not excessively onerous; and (4) there must be compensatory measures to offset losses suf-fered by the employee due to the restrictions on competition. Before concluding whether com-petitive actions by a former employee constitute a breach of trust or violate the principle of good faith, it is necessary in each case to first confirm whether the non-competition agreement is valid.
Opinions in practice have varied widely as to whether, among the above criteria, the existence of measures to compensate an employee for losses suffered due to restrictions on competition is a necessary condition for a non-competition agreement to be enforceable. But in many past cases the courts have indeed held such an agreement to be invalid due to a lack of com-pensatory arrangements.
However, in a 2005 civil judgment, citing a 2005 judgment of the Supreme Court, the Taichung District Court stated that there was no necessary relationship between compensatory measures and a duty of non-competition, such that the former should be regarded as valuable consid-eration for the latter. Therefore it was inappro-priate to make the existence of such measures a criterion for judging the validity of a non-competition agreement.
Whether this judgment will bring about a change in the case law remains to be seen.