VLP Legal Press #30
Non-Competition Clause
We are often asked:
Can my current employer stop me from working for a competitor after I resign?
Can my business partner prevent me from joining or starting a similar business?
Today, we will explore: Are non-competition clauses actually valid and enforceable under the Cambodian laws?
Question 1: What is a non-competition/non-compete clause?
A non-competition clause is a contract term that restricts a party from participating in activities that compete with another party.
Such clauses are commonly found in business agreements (e.g. joint venture agreements, shareholders’ agreements, franchise agreements, distribution agreements) and sometimes within employment contracts.
Non-competition clauses are used to protect a business from being copied or undercut by someone who participates in it. They try to stop people from using what they learned (clients, secrets, know-how) to compete right away.
Business Non-Compete Clause
A non-competition clause in a business agreement (“Business Non-Compete Clause”) typically restricts a party (or both parties) from participating in competing activities with the other party or with the business of a jointly owned company.
Example (non-competition clause in a franchise agreement):
“The Franchisee agrees that during the Term of this Agreement and for a period of [2 years] following termination, it shall not, within [Cambodia], directly or indirectly engage in any business competing with the Business of the Franchisor or [specific business activities], including but not limited to holding shares, be employed or use any nominee to carry out the restricted activities.”
Employment Non-Compete Clause
A non-competition clause in an employment contract (“Employment Non-Compete Clause”) generally restricts an employee from working for a competitor or establishing a competing business after the termination of employment.
Example (non-competition clause in an employment contract):
“The Employee shall not, during employment and for a period of [12 months] after termination, directly or indirectly engage in or be employed by any business that competes with the Company within [Cambodia], in relation to [specific business activities].”
Question 2: Are “business non-compete clauses” valid and enforceable under the Cambodian laws?
There is no express provision under Cambodian law specifically governing non-competition clauses. Their validity and enforceability are therefore assessed under the general principles of the Civil Code.
Under Article 313 of the Civil Code, an obligation may consist of performing or prohibiting from performing a certain act. A non-competition clause is therefore a valid form of contractual obligation.
However, such clauses remain subject to general rules under the Civil Code, including the prohibition of abuse of rights (Article 4) and the principle ofgood faith (Article 5).
Accordingly, a Business Non-Compete Clause is generally valid and enforceable, provided that it does not impose an unreasonable or abusive restriction on a party.
In practice, enforceability will depend on whether the clause is reasonably limited in:
duration;
geographic scope; and
scope of restricted business activities.
Question 3: Are “employment non-compete clauses” valid and enforceable under the Cambodian laws?
While a Business Non-Compete Clause is generally accepted in commercial transactions under the Cambodian law, Employment Non-Compete Clauses are more likely to be challenged pursuant to the framework of Cambodian law.
Based on Article 36 of the Constitution of Cambodia, Khmer citizens of either gender shall enjoy the right to choose any employment according to their ability and to the needs of the society.
In addition, Article 70 of the Labour Law provides that any clause of a contract that prohibits the worker from engaging in any activityafter the expiration of the contract is null and void.
However, Article 69 of the Labour Law provides that outside working hours, the worker can engage in any professional activities that are not in competition with the enterprise for which he works or that are not harmful to the agreed process of performance, unless there is an agreement to the contrary.
Accordingly, while an employment non-competition during the term of employment may be enforceable (subject to reasonableness), a post-employment non-competition is likely to be considered invalid.
Question 4: If the validity of “employment non-compete clauses” may be challenged, what recourse does the employer have to protect its interest?
Given the limitations on the enforceability of Employment Non-Compete Clauses under Cambodian law, employers should consider alternative contractual protections during and after the term of the employment, which are more likely to be upheld.
Confidentiality Obligation
Employers may include confidentiality clauses in employment contracts to prevent employees from disclosing or using the company’s confidential information, both during and after employment.
Such clauses typically cover trade secrets, client and supplier information, pricing, strategy, and internal processes.
Unlike Employment Non-Competition Clauses, confidentiality obligations do not restrict an employee’s right to work but rather regulate the use of sensitive information. As such, they are generally more consistent with the Labour Law and enforceable in practice.
Non-solicitation clauses
Employers may also include non-solicitation clauses to restrict employees from soliciting or diverting clients to their new organisation; and/or inducing employees of the company to leave.
These clauses are typically more defensible than Employment Non-Compete clauses, as they are narrower in scope and aim to protect legitimate business interests without imposing a general restriction on employment.
Intellectual Property Protection
An intellectual property protection clause is also important to ensure that any work, materials, or creations developed by the employee in the course of employment belong to the company. Without such a clause, there may be uncertainty or disputes as to ownership, particularly for work products that are valuable to the company’s business (e.g. client materials, internal systems, designs, or software).
This clause helps safeguard the company’s commercial interests and ensures it can freely use and exploit such work without restriction or needing the employee’s consent to use the work, especially when the company has invested a huge sum in developing such work.
🚨The questions above relate to contractual non-competition clauses and do not cover anti-competition (competition law) in Cambodia. Anti-competition generally refers to business conduct that restricts fair market competition, such as price-fixing, market sharing, or abuse of dominant position - which is governed by competition law, not just contract terms between parties.
Examples of clauses above are just examples of the structure of the respective clause and shall not be deemed as a legal advice nor confirmation of the applicability of such clause to every contract or its enforceability.
There is no simple “yes” or “no” answer to our question: Are non-competition clauses actually valid and enforceable under the Cambodian laws?
It largely depends on:
What the clause restricts (scope, duration, purpose), and
Whether those restrictions are prohibited or limited under applicable law.
This is for general reference only and does not constitute legal advice. For further guidance and legal advice on the non-competition clause in your contracts, contact us at:📧 connect@vlplaw.co