Non-Compete Clauses in the Context of Thai law: What to Consider?

It has become increasingly common for employers to include restrictive clauses in employment contracts, particularly non-compete clauses, which prevent employees from working for a competitor for a specified period of time after leaving the company. Given the nature of these clauses, which directly impact an individual’s right to work and reflect the imbalance of negotiation power, employers must carefully review the limitations as provided under the law in order to understand when it is appropriate to include non-compete clauses and how to draft them to ensure they are valid and enforceable to the fullest extent possible.

Under Thai law, non-compete clauses are not entirely prohibited. Thai courts recognise the importance of allowing employers to protect their business interests, as well as acknowledge the reality that employees may sometimes have access to important information of employers during their employment. However, with the aim of guaranteeing balanced protection for employees and to ensure fairness, the law in essence provide that the non-compete clauses signed by the employee are enforceable, but only if they are fair and reasonable given the circumstances. This principle is outlined in the Unfair Contract Terms Act BE 2540 (1997) and Section 14/1 of the Labour Protection Act BE 2541 (1998).

Thai law does not prescribe specific standards on the criteria for determining whether or not such a clause is fair and reasonable. Consequently, Thai courts have discretion in making this determination. However, the Unfair Contract Terms Act BE 2540 (1997) offers examples of factors that should be taken into consideration. Section 5 of said Unfair Contract Terms Act provides as follows: 

Based on Section 5 of the Unfair Contract Terms Act BE 2540 (1997) and Section 14/1 of the Labour Protection Act BE 2541 (1998) and according to various Supreme Court decisions, restrictive clauses such as non-compete clauses that do not completely restrict an employee’s ability to work for others, and where the duration and geographic scope of the restraint are reasonable, are likely to be deemed valid and enforceable by the courts. To date, non-compete clauses lasting 1-2 years have been upheld as valid, provided that the restricted areas are limited to the provinces or regions within which the employer operates or conducts business.

Additionally, Thai courts have recently taken a stricter approach to interpreting and enforcing these restrictive covenants. In a more recent Supreme Court decision, the court considered not only the duration and geographical scope of the restraint but also the length of the employee’s service. In such court decision, the employee had worked for the employer for less than two years, and the court found that a 24-month restriction period imposed an excessive burden on the employee. Consequently, the court reduced the period from 24 months to 3 months and awarded minimal damages.

In light of the relevant legal provisions and the direction of recent court decisions, it is advisable for employers to carefully consider the necessity of imposing non-compete clauses including other restrictive clauses. Non-compete clauses should be applied only when absolutely essential, ensuring they are fair and reasonable, by not only limiting the scope and duration of the restriction to what is reasonable but also by considering the overall context, such as the employee’s position and their potential access to confidential or sensitive information.

This Newsletter is intended merely to provide a regulatory overview and is not intended to be comprehensive; it is NOT a provision of legal advice. Should you have any questions on this or on any other areas of law, please do not hesitate to contact the following: 

Chanakarn Boonyasith
Partner
Pitchabsorn Whangruammit
Attorney-at-Law

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