
In Mongolia under the principle of freedom of contract, the law allows an employer, by mutual agreement with an employee who has a special employment contract (e.g., an Executive agreement), to include non-compete obligations in the employment contract to protect trade secrets and business interests or to enter into a supplementary agreement for this purpose. In such cases, the employee is prohibited from working for a business entity, organization, or individual that directly competes with the employer or from engaging in activities that directly compete with the employer for a certain period after the termination of the employment contract and employment relationship [1].
An employment contract with special conditions is a type of employment contract that is concluded based on the employee’s performance of executive management duties in an enterprise or organization, the exercise of certain ownership rights through the employee, or the employee’s specialized knowledge and skills [2].
For example, if a tourism company hires a travel manager with extensive knowledge and experience in the legal and geographical characteristics of the country where tours are organized, the company may conclude an employment contract with special conditions. In this case, the contract may include a non-compete obligation, preventing the employee from establishing a competing tourism business for a certain period after the termination of their employment. However, imposing a non-compete obligation on an employee may conflict with the constitutional rights to “freely choose a profession” and “to engage in private business” as stipulated in the Constitution of Mongolia [3][4].
Therefore, it is essential to balance the rights of both parties and clearly define the scope of the non-compete obligation.
The employer must explicitly specify in the employment contract or non-compete agreement the reasons for prohibiting competition, the type of activity covered by the restriction, the geographic scope, the duration of the non-compete period, and the compensation to be paid to the employee during that period [5]. In other words, employers should avoid defining the non-compete obligation too broadly—such as applying it to an overly specialized field, covering an entire market, lasting for an excessive period, or lacking clear compensation terms. Moreover, the non-compete period should not exceed one year after the termination of the employment relationship [6]. Furthermore, the law provides that the non-compete obligation does not apply to the employee’s work abroad [7].
Additionally, even if the employer does not specify the amount of compensation, the law requires the employer to pay the employee a monthly compensation of at least 50 percent of the employee’s last month’s salary during the non-compete period [8].
Furthermore, the law prohibits employers from imposing non-compete obligations on minors, probationary employees, or apprentices [9].
Therefore, while employers have certain rights that need to be protected under a non-compete obligation, it is important to consider legal and regulatory provisions to prevent situations in which the employee’s position, an excessively long non-compete period, an overly broad scope of prohibited activities, or unclear compensation terms create an unfair burden on the employee.
References:
1. Article 72.1 of the Labor Code
2. Article 65 of the Labor Code
3. Davaanyam G., The Non-Competition Obligation of an Employee Arising from the Principle of Freedom of Contract, 2021
4. Article 16.4 of the Constitution of Mongolia
5. Article 72.2 of the Labor Code
6. Article 72.3 of the Labor Code
7. Article 72.5 of the Labor Code
8. Article 72.4 of the Labor Code
9. Article 72.6 of the Labor Code
Books & Textbooks:
1. Baasan L., Theory and Practice of Labor Disputes, 2011
Disclaimer: This legal information and article are intended for general informational purposes only and have been prepared in accordance with the laws in effect at the time of writing. For legal advice, please consult a professional attorney.