A South Korean court has ruled that non-compete obligations, which have mainly been contested in transfers between businesses in the same category such as cafes or real estate brokerages, can also apply to businesses classified differently on paper. The ruling holds that if customer bases and business formats overlap enough to create real competition, the operations can be treated as the "same line of business" under the Commercial Act.
According to legal sources on the 25th, the 17th Civil Division of the Suwon District Court, presided over by Judge Lee Min-soo, ordered last month that B shut down the managed study cafe he operates and refrain from running the same line of business for 10 years, in a non-compete suit filed by A against B. The court also ordered B to pay A 7 million won ($5,000) plus interest for late payment.
A acquired a reading room in Suwon that B had been operating in August 2024, paying 45 million won ($32,000) in key money. But in May of the following year, B opened a managed study cafe about 110 meters from the original reading room. A filed suit, arguing that the acquisition of the reading room amounted to a business transfer under the Commercial Act and that B had therefore breached the non-compete duty.
The issue was whether a reading room and a managed study cafe constitute the "same line of business." The court found that while the two differ in business classification codes and in whether they are subject to value-added tax, both provide study space and share their main customer base, so a competitive relationship can arise between them. What matters is the actual content of the business and the competitive relationship, rather than a formal distinction between categories, the court said.
The court held that even without a separate non-compete clause in the contract, the deal amounted to a business transfer under the Commercial Act because facilities and equipment, operational matters, licenses and permits and sales records were all handed over together. The ruling also confirmed that once a deal qualifies as a business transfer, a non-compete duty can arise under the Commercial Act even in the absence of a separate agreement.
The decision draws attention because it means non-compete obligations can apply even when a seller hands over an existing store and then reopens nearby after partially changing the business name or format. Similar disputes could increase in particular in sectors where legal and administrative classifications differ but services and customer bases are alike, as with reading rooms and study cafes.
The court's position is that a business cannot be deemed a different line of business merely because the operator received no technology or trade secrets from the previous business or used different materials, and that real competition must be assessed by weighing the content, scale, methods and scope of the operations. That means restaurants and cafes may also find it difficult to escape non-compete duties simply by changing their product lineup or signage.
In a survey of small business owners based on 2024 data by the Ministry of SMEs and Startups, "intensifying competition" was the most cited management difficulty at 61.0% in a multiple-response question. It ranked above raw material costs (49.6%), decline of commercial districts (33.5%) and deposits and monthly rent (28.6%).
Choi Jung-pil, an attorney at law firm Loel, said contracts are often not drafted in detail when key money rights are bought and sold. "To prevent disputes, the parties need to make clear at the contract stage whether businesses providing similar services are also covered by the non-compete restriction," the attorney said.
