The competition clause allows the employer to protect itself against the employee using the information, knowledge and expertise acquired during employment to engage in activities that compete with the employer after termination of employment. In a non-compete clause agreement, the employee agrees to refrain from engaging in gainful activity that would compete with the employer for a specified period of time after leaving employment, but not longer than one year.
This article summarises the basic rules that apply to the competition clause.
Conditions for negotiating a competition clause
A non-compete clause can only be agreed in writing, provided that it can be fairly demanded of the employee. The key condition is the nature of the information acquired by the employee during the course of his employment. If the use of that information would make it seriously difficult for the employer to carry out its business, the clause can be concluded.
The clause applies to any gainful activity that:
- is identical to the employer’s business, or
- is competitive in nature.
It is necessary to assess whether the employee’s new activity would actually constitute competition with the employer. The competition clause may be limited to specific activities and need not apply to the employer’s entire business.
Compensation for employees
The employee shall be entitled to monetary compensation for fulfilling the obligations under the competition clause , which must be at least half of his average monthly earnings for each month that the clause lasts. If this compensation is not agreed in the agreement, the competition clause is null and void.
The clause may also contain a contractual penalty in case of breach by the employee. The amount of this penalty must be reasonable, taking into account the length of the non-compete clause, the amount of monetary compensation and the nature of the gainful activity. Case-law shows that a penalty equivalent to the amount that the employee would have received had the clause been complied with is usually considered reasonable. If the employee pays the penalty, his obligation under the competition clause is extinguished.
Termination of the competition clause
There are several ways to terminate a non-compete clause:
- Termination by the employee: the employee may terminate the clause if the employer has not paid the agreed monetary compensation or part thereof within 15 days of its due date. In such a case, the clause shall expire on the first day of the calendar month following receipt of the notice.
- Withdrawal by the employer: the employer may only withdraw from the competition clause for the duration of the employment relationship. According to recent case law, the employer may withdraw without giving a reason if this option is agreed in the agreement. Nevertheless, in the event of a dispute, the test would be whether the employer acted arbitrarily or abused its right.
Both termination and withdrawal from the competition clause must be in writing.
Specific restrictions
The competition clause cannot be concluded with teaching staff of schools and educational establishments established by the Ministry of Education, Youth and Sports, a region, a municipality or a voluntary association of municipalities, nor with teaching staff of social service establishments.
Case law, specifically the Supreme Court judgment of 13 December 2023, sp. 31 Cdo 2955/2023, further emphasises that an employer may only withdraw from a competition clause during the employment relationship.
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This article is for informational purposes only and does not constitute legal advice or guidance for any particular case.