Confidentiality and Non-Competition clauses in Thai employment agreements

Background

Information and intellectual property are becoming increasingly valuable assets for many businesses. The increasing mobility of labour in the new economy creates significant challenges for businesses in protecting their information and competitive advantages post-employment.

Rights and Obligations in the Absence of a Written Agreement

Employees[1] are generally seen to have several key obligations during and after employment[2]

Non-Competition during employment

An employee should not compete with their employer. This includes:

The first component – diverting corporate opportunities for the employee’s benefit during employment – clearly offends the duty not to compete. But the second component may be harder to judge. Whether other work will constitute a breach of duty depends on the risk of conflict or damage to, the employer’s business.

On termination of the relationship without specific provisions and agreement[3], the duty not to compete largely disappears. The ex-employee may work for a competitor and may compete directly with his or her former employer. This is not absolute as an employee cannot misuse the employer’s confidential information and any competition must be fair.

Confidentiality

Unlike the duty of non-competition, the duty of confidentiality survives the termination of the employment.

During and after employment, the employee must keep confidential information and trade secrets obtained through his or her employment[4].

Confidential information can relate either to the conduct of a business, including its structure, the identity of its suppliers, pricing, marketing techniques, and customer lists, or to the products of the business, including its trade secrets, formulas, and manufacturing processes.

In Thailand, Section 420 of the Civil and Commercial Code will apply to employees for disclosing or using confidential information without authorization from their employer, in addition to any liabilities under their Employment Agreement or Non-Disclosure Agreement, if any.

If the confidential information used or disclosed constitutes as trade secrets, the provisions set out in the Trade Secret Act will also apply. Such unauthorised disclosure confidential information, whether via publication, audio, image broadcasting, or any other means will cause the employee to face  imprisonment and/or a fine of up to two hundred thousand Baht.

In addition, the Criminal Code Section Code s.322 to s.325 covers the offence of Disclosure of Confidential Information. Section 324[1] covers information, specifically industry secrets. acquired during employment, whilst Section 323 covers information acquired in a professional capacity. Of note is that breaches under this section are compounded.

[1] Thai Criminal Code B.E. 2499 Section 324. Industry Secrets Whoever, on the ground that oneself having the duty, professing to call the trust, having known or acquired the secret according to industry, discovery, or scientific invention, disclosing or using such secret for the benefit of oneself or other person, shall be imprisoned not more of six months or fined not more of one thousand Baht, or both

Outside serious breaches of confidentiality, proof of misconduct is more difficult.

In Decision No. 7189/2562, the Thai Supreme Court found that forwarding confidential work documents to a personal email account amounted to disclosure, even though there was no evidence that the documents were subsequently released to third parties. In the first instance, the Region-9 Labour Court found that there was no breach of the defendant’s Work Rules as the relevant documents were not like trade or business secrets; and there was no evidence that the plaintiff had sent the information to any other person. It was stated that as there was no breach of the Work Rules, there was insufficient cause to justify the summary dismissal, and the termination of employment was therefore found to be unlawful.

On appeal, it was found that the employee owes a duty of confidentiality to the defendant. In particular, the defendant had signed a non-disclosure agreement whereby he agreed to protect and maintain the confidentiality of the defendant’s information and information technology. The Supreme Court found that such an agreement highlighted the importance the defendant placed on the protection and storage of information relating to its business.

The obligation does not extend to all information that is acquired during employment. For example, while an employee is forbidden from removing and using a written customer list, it is not clear that an employee is prohibited from using information about customers that he or she has come to know through day-to-day contact.

The employer should mark sensitive information as confidential and take other steps to reinforce the confidential status of particularly sensitive information, such as limiting access to this information. This will help prevent the unwitting disclosure of sensitive information and potentially assist in a lawsuit for breach. Markings and warnings will help identify which information should have been kept confidential.

Duty of Disclosure

In addition to the employee’s negative obligations, there is a contra obligation to disclose relevant information. Withholding relevant information may be inconsistent with the employee’s employment. An employer may avoid a contract of employment if, for example, a prospective employee, was under criminal investigation. Such non-disclosure would constitute a failure to meet the standards of good faith required in negotiations for employment.

Ownership of an Employee’s Work

An employer owns the intellectual property created by an employee during employment, only where that employee has been hired under a specific work agreement. When employed, an employee is obligated to transfer their inventions where it is the result of the very work that the employee is paid to do.

To avoid the uncertain position concerning the ownership of inventions, and to avoid arguments that an employee has developed something outside of the course of his or her employment, employers should put in place a written agreement covering the ownership of intellectual property. These types of agreements are typically called “Invention and Trade Secret Agreements.”

There are several gaps in the rights provided to employers under the general Thai law. To protect sensitive information and intellectual property, the employer should require all incoming employees to sign an agreement dealing with confidentiality, inventions and trade secrets. This agreement normally addresses both the use of the employer’s confidential information and the employer’s ownership of intellectual property. These agreements also specify that this obligation will continue after employment.

E-mail and Internet Policies

E-mail and the Internet presents a significant threat to an employer’s confidential information through improper activities. Although in Thailand the courts have not specifically addressed the legality of employers monitoring their employees’ computer use, it appears likely that employers may monitor e-mail, though it should be done following a stated policy to which the employee has consented.

Monitoring may be necessary to maintain the employer’s IT systems and the confidentiality of the information on it and to avoid liability for its improper use to the harm of third parties.

The forthcoming Personal Data Protection Act also applies to the personal information of employees and customers, and others. This legislation applies to the collection, use or disclosure of personal information. An employer’s monitoring of e-mail or Internet use may impact this privacy legislation, and so employers ought to obtain their employer’s consent. The consent document should refer to a policy that sets out the scope of monitoring that the employer will conduct. The policy limits should not be overstepped, and the employer should obtain such consent at the time the employment agreement is entered.

Special Considerations for Senior Employees

The relationship between an employer and its high-level management imposes an obligation of loyalty, good faith, and avoidance of conflicts of duty and self-interest.

This obligation limits the employee’s ability to comp­ete with his or her employer. These limitations last for a reasonable time after the employment relationship ends and prevents an employee, for instance, from capturing their former employer’s business opportunities.  For example, a senior employee cannot obtain contracts for his or her benefit that might have been available to their former employer and cannot solicit their former employer’s customers or employees to leave the former employer.

But employees are not prevented from competing with a former employer and any prohibition against soliciting customers and employees is not absolute. To actively solicit a former employer’s customers is prohibited but only for a “reasonable” time after employment. The period for which the employee owes a duty greatly depends on the employment relationship and any contractual terms.

Restricting Post-Employment Activities

Written employment agreements often prohibit an employee from being employed by a competitor, or approaching a former employer’s customers.

The general rule is that these provisions are void for being in restraint of trade. But there are exceptions. A contractual term will be in restraint of trade and unenforceable where an individual cannot earn his living or exercise his vocation or in other words it is a contract of servitude. There is a public interest in discouraging restraints on trade and maintaining free and open competition. However, the courts have not restricted the right to contract, particularly when that right has been exercised by knowledgeable persons of equal bargaining power.

The nature of what is being restrained is also an important factor. A covenant may be much more difficult to defend if it is directed against competition generally and not limited to specific acts.

Conclusion

A well-constructed employment agreement including specific references to trade secrets, confidentiality and competition are paramount in a highly competitive industry.

Further basic housekeeping requires disclosure and consent to practices that will monitor employees’ use of computers, internet, capture personal data as well as set out guidance on public disclosure practices.

Without these specific provisions, the general employment laws in Thailand provide little relief for an employer who has found themselves in conflict with their former staff.


 

[1] The Labour Protection Act is intentionally broad in defining the terms of Employer and Employee. The latter can include all types of Employees, for example full-time and part-time Employees, permanent and non-permanent Employees, Employees on probation, and Employees under special employment contracts

[2] The Civil and Commercial Code s. 575 defines an employment contract as contract whereby a person, called the Employee, agrees to render services to another person, called the Employer, who agrees to pay remuneration for the duration of the services.

[3] A restriction can be either geographical (by prohibiting the carrying out of the restricted business in a certain area) and/ or for a specified time, provided that the geographical area and time specified is deemed to be fair. In any event, the court has the power to reduce the restrictions at its discretion (i.e. the court is not obliged to find an unreasonable restriction wholly unenforceable) if the court takes the view, under the terms of the Unfair Contract Terms Act, B.E. 2540 (1997), that the restriction imposes too much of a burden on the Employee.

[4] Regulations such as the Trade Secret Act B.E 2545 (2002) set out secrecy and confidentiality obligations that can apply to Employees in an employment relationship.

[5] Thai Criminal Code B.E. 2499 Section 324. Industry Secrets Whoever, on the ground that oneself having the duty, professing to call the trust, having known or acquired the secret according to industry, discovery, or scientific invention, disclosing or using such secret for the benefit of oneself or other person, shall be imprisoned not more of six months or fined not more of one thousand Baht, or both