An employee may not perform work under an employment relationship for another entity conducting business that competes with the employer. This seems to raise no doubts. However, it's worth answering the question of how to understand statutory business competitive with the employer and what rights and obligations apply to both the employer and the employee covered by the non-compete clause.
Activities that are competitive with the employer
Pursuant to the provisions of Article 101(1) § 1 of the Labour Code, to the extent specified in a separate agreement, an employee may not conduct any activity competitive to the employer or perform work under an employment relationship or on any other basis for the benefit of an entity conducting such activity.
In practice, it is assumed that an employee covered by a contractual non-competition clause during the duration of the employment relationship may not conduct any activity, not only business, that meets two characteristics:
a) is an activity that threatens or infringes the interests of the employer,
b) its conduct has been deemed prohibited in the agreement between the parties.
Form of non-competition agreement
During the employment relationship, a non-competition agreement must be concluded in writing, under penalty of nullity. The Act also stipulates that the prohibition in question should be contained in a "separate agreement." Should this wording be understood as requiring the conclusion of a non-competition agreement separate from the employment contract? This question has been the subject of scholarly consideration, and a position has been developed indicating that a separate agreement is not necessary.
It is entirely possible to include a non-compete clause in an employment contract. However, it should be remembered that an employment contract does not have to be in writing, so if the parties decide to include a non-compete clause, they should conclude the employment contract in writing. This is to avoid the parties assuming that a non-compete clause has been entered into.
Therefore, a non-competition agreement may be concluded as a separate document or the parties may include a non-competition provision in the content of the employment contract.
Payment under a non-competition agreement during the employment relationship
A non-competition agreement during the term of an employment contract is, in principle, a gratuitous agreement, although, according to the prevailing case law, the parties may agree that it will be a paid agreement.
Content of the non-competition clause after termination of the employment relationship
The conclusion of a non-competition agreement after termination of the employment relationship should contain a precise definition of:
a) the extent to which the employee will not be able to conduct activities competitive to the employer;
b) the duration;
c) the amount of compensation due to the employee from the employer in this respect.
Validity period
The legislature has not specified a timeframe for the parties to conclude the agreement, so the parties are free to determine its duration independently. The parties may also shorten the duration of the non-competition clause in two circumstances: if the reason justifying the prohibition ceases to exist or if the employer fails to fulfill its obligation to pay compensation.
The reason justifying the establishment of a non-compete clause after the termination of an employment relationship is that the employee possesses particularly sensitive information, the disclosure of which could expose the employer to harm. Whether a given piece of information is particularly sensitive depends on the individual assessment of the employee and the employer, for example, in situations where technological advances have rendered the information ineffective.
Interestingly, according to case law, after the termination of the non-compete clause, the employer is still obliged to pay compensation to the former employee.
There is also a completely different view, according to which such practice contradicts the essence of mutual obligations, which should be fulfilled simultaneously. Therefore, if one party's obligation to perform has expired, the other is no longer obligated to fulfill their obligation.
Amount of compensation
The amount of compensation due to an employee following the termination of employment under a non-compete clause depends on the parties' wishes. The legislature has established that this compensation cannot be less than 25% of the employee's remuneration received prior to the termination of employment for a period corresponding to the duration of the non-compete clause.
Employee liability for violating the non-competition clause
A former employee is liable to their former employer if they fail to comply with the non-compete agreement. Claims by the employer against the employee in this case are heard by civil courts under Article 471 et seq. of the Civil Code.
Including a contractual penalty provision in the non-competition agreement itself seems controversial. Although it is emphasized that in non-competition agreements, the party that deserves a higher level of protection is the employer. Therefore, the protective function of an employee who violates this prohibition seems inapplicable in such a configuration.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of May 23, 2024
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