Supreme Court Decisions

Interesting Article
A former employee, who had worked as the plaintiff's cosmetic blending supervisor, signed a non-compete agreement prohibiting him from engaging in any occupation competing with the company for one year after his resignation. The agreement further provided that, if he breached the agreement, he would be liable to pay a contractual penalty of 500,000 baht. However, after leaving his employment, the defendant accepted employment with a company manufacturing cosmetics similar to those produced by the plaintiff within less than one year.The Central Labour Court dismissed the claim on the ground that the agreement was unfair. The Supreme Court, however, held that the provision prohibiting the defendant from engaging in a competing occupation for one year after leaving the company imposed a reasonable period of restriction. The agreement concerning conflicts of interest between the plaintiff and the defendant did not impose a burden on the defendant beyond what could normally be expected. It was therefore a fair and reasonable contractual provision.However, the contractual provision stating that, in the event of a breach, the defendant agreed to pay the plaintiff a penalty of 500,000 baht constituted an agreement fixing damages in advance for breach of contract. Accordingly, it was a contractual penalty under Section 379 of the Civil and Commercial Code. If such penalty is excessive, the Court has the authority to reduce it pursuant to Section 383. Since the assessment of damages falls within the discretion of the Labour Court, the Supreme Court considered it appropriate to remit the case to the Central Labour Court for the determination of the appropriate amount of damages.

Interesting Article
The plaintiff operated a business distributing construction materials and home improvement products. The plaintiff entered into an agreement with the defendant, who served as an Assistant Managing Director, under which the defendant agreed that, for a period of one year after leaving the plaintiff's employment, he would not "engage in or participate in a business" competing with the plaintiff's business.After resigning, the defendant accepted employment with another company that directly competed with the plaintiff. The plaintiff subsequently brought an action claiming damages on the ground that the defendant had breached the non-competition agreement.The Supreme Court held that the restrictive covenant constituted a limitation on the employee's right to work and therefore had to be interpreted strictly. The contractual prohibition against "engaging in or participating in a business" referred to operating, investing in, or carrying on a competing business, and did not extend to accepting employment as an employee of another company, even if that company was a direct competitor of the plaintiff.Accordingly, the defendant had not breached the agreement, and the plaintiff was not entitled to recover damages.

Interesting Article
The defendant, a former sales employee of the plaintiff, agreed under his employment contract that, for a period of two years after the termination of his employment, he would not work for a competing company or sell the same type of products within Bangkok and its metropolitan area. The agreement further provided that, if the defendant breached this obligation, he would be liable to pay damages of not less than 100,000 Baht.After leaving the plaintiff's employment, the defendant accepted a position with another company engaged in the sale of the same type of products and contacted the plaintiff's existing customers. The plaintiff therefore brought an action claiming damages in accordance with the non-competition agreement.The Central Labour Court held that the defendant had indeed breached the agreement. However, as the plaintiff failed to produce clear evidence of the actual loss suffered, the Court exercised its discretion to reduce the contractual damages from 100,000 Baht to 6,000 Baht, together with interest.The Supreme Court affirmed the judgment. It held that the plaintiff had a legitimate interest in protecting its business information and trade secrets. The restriction, which applied for only two years, was reasonable in duration, and the geographical limitation to Bangkok and its metropolitan area was likewise reasonable in scope. Accordingly, the agreement did not impose an unfair restriction on the defendant's right or freedom to pursue his occupation beyond what could normally be expected under Section 5 of the Unfair Contract Terms Act B.E. 2540.The Supreme Court further held that the contractual damages provision constituted a penalty clause under Section 379 of the Civil and Commercial Code, and that the Court has the authority under Section 383 to reduce the penalty where it considers the stipulated amount to be excessive. Therefore, the reduction of the contractual penalty to 6,000 Baht was lawful and appropriate under the circumstances.

Interesting Article
In this case, the five plaintiffs were engaged to serve as Co-Chief Executive Officers (Co-CEOs), with duties to provide advice and support in the management of the engaging company’s business. They received monthly remuneration, and the agreements did not specify a fixed term.The Supreme Court held that the nature of the work did not constitute an engagement to achieve a specific “result of the work” in the manner of a hire-of-work contract. The provision of advice did not guarantee that the engaging party would follow the advice or that a successful result would necessarily be achieved in every instance. The agreements were therefore service agreements, being a type of contract not specifically classified as a separate nominate contract under the law.The engaging party subsequently changed the working conditions by requiring the plaintiffs to work regularly at the company’s office, even though no such requirement had originally been agreed. When the plaintiffs refused to comply, the engaging party terminated the agreements.The Court held that this change constituted a unilateral alteration of a material term of the agreements. The plaintiffs were not in breach of contract, and the termination by the engaging party was therefore wrongful. Upon termination, the parties were required to be restored to their former positions under Section 391 of the Civil and Commercial Code. The engaging party was also required to pay remuneration for work already performed, together with compensation for damage resulting from the wrongful termination. Persons who were not direct parties to the agreements were not jointly liable, even if they were executives within the same corporate group.This judgment confirms that the classification of an agreement must be determined from the nature of the duties and the purpose of the engagement, rather than merely from the title of the contract. Where a person is engaged to provide services or advice for monthly remuneration, without being engaged to achieve a specific result, the agreement constitutes a service agreement rather than a hire-of-work contract. If the engaging party terminates the agreement without a contractual or legal right to do so, that party may be liable to pay outstanding remuneration and compensation for damage arising from the termination.