One Size Does Not Fit All: Non-Competes in the Asia Pacific
Much like in the U.S., Asia-Pacific countries generally disfavor restraints on trade as a matter of public policy and enforce them, if at all, only to the extent the restrictions (1) are reasonable in light of the facts, (2) are supported by adequate consideration, and (3) protect a legitimate business interest. Highlighted below are certain guidelines concerning post-employment non-compete agreements in seven nations that are popular choices for regional headquarters of U.S.-based multinational companies:
- Non-compete agreements in Japan and Singapore must protect a legitimate interest (such as confidential information or business contacts) and be reasonable in territorial scope, restricted activity, and duration. In Japan, the restricted period generally can be no more than two years.
- Employers in Hong Kong can restrict post-employment activities for a reasonable period (which is generally not to exceed six months), and the scope of restrictions must be reasonable and protect a legitimate interest (such as goodwill, confidential information, or stability of workforce). Unlike certain jurisdictions in the U.S., continued employment alone is not sufficient consideration to enforce the agreement.
- In Australia, the restricted period should not exceed 12 months. Courts may delete provisions so that the resulting non-competition clause is reasonable and enforceable, and in certain jurisdictions, such as New South Wales, the court can modify non-compete provisions to render them enforceable.
- China’s labor laws allow restrictions that last up to two years after employment ends for senior managers, senior technical employees, or employees who had access to the company’s confidential information if adequate compensation is offered. If the agreement fails to address compensation, courts may set compensation at 30% of the former employee’s wages over the last 12 months or the minimum wage, whichever is higher. If a company unilaterally terminates the non-compete agreement, it must pay the former employee three months’ of compensation the employee would have received pursuant to the non-compete agreement.
- Taiwan’s labor laws also require reasonable compensation, which must be at least 50% of the former employee’s average wage (as of the termination date) and sufficient to support the restricted individual’s economic needs during the restricted period. The restricted period cannot exceed two years.
- Finally, like California and North Dakota, post-employment non-compete agreements are void in Malaysia unless they fall within limited statutory exceptions (e.g., in the context of a sale-of-business or an agreement between or amongst partners in a partnership).
As we often remind our clients in the United States, employers in the Asia-Pacific area should also avoid one-size-fits-all non-compete agreements and, instead, draft agreements tailored to applicable law as well as the relevant facts. If an employer has reason to believe a breach of a non-compete agreement has occurred or is imminent, prompt action should be taken because, just as in the U.S., delay in enforcement efforts may give a court pause when evaluating if a restrictive covenant is truly necessary to protect a legitimate business interest.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.