Compensation for non-competition during the duration of the employment

Compensation for non-competition during the duration of the employment

Non-competition agreement and compensation

Pursuant to the provisions of the Labour Code, the employer has the option of concluding a separate agreement with the employee regarding the so-called non-compete clause. Its main purpose is to protect the interests of the employer. He wants to be sure that the employee will not cooperate with the “competitors”, potentially revealing information important for the employer and his company. On the basis of such an agreement, the employee is obliged to refrain from competitive activities towards the employer. Furthermore, the employee should also not work for a competitor of his employer (art. 1011 § 1 of the Labour Code). Violation of the prohibition exposes him to liability for damages towards the employer if he, in connection with breach of contract, suffers any damage.

 

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Non-competition during and after the employment relationship

The non-competition agreement is usually concluded for the duration of the employment relationship. However, the Labour Code provides for the possibility of contractually extending the non-competition clause for a limited period of time after the end of the employment relationship. The condition is that the employee must have access to particularly important information, the disclosure of which could expose the employer to harm.

In exchange for extending the non-competition clause for a period after the employment relationship, the employer is obliged to pay compensation. The amount of compensation is specified in art. 1012 § 3 of the Labour Code. It shows that the compensation cannot be lower than 25% of the remuneration received by the employee before the termination of the employment relationship, for a period corresponding to the non-competition period. This compensation constitutes compensation for the employee’s limitation on taking up a new job.

A similar provision, which would oblige the employer to pay compensation, is missing in art. 1011 of the Labour Code, regarding a non-competition agreement for the duration of the employment relationship.

In this case, is the employee entitled to any additional benefits, since the possibilities of additional earning are limited? After all, he could potentially get an additional part-time job with another employer and do the same job. All in all, this is what he is best at. Is the employee not entitled to anything for having such a road to additional income closed?

Compensation for non-competition during the employment relationship

Well, not necessarily. There is a possibility of guaranteeing compensation. However, since this compensation is not provided for by law, it must result from the agreement. In other words, if we include an appropriate clause in the employment agreement with the employer, we will be entitled to compensation. Such a clause may also be included in other internal regulations, such as remuneration regulations or collective agreements.

However, it should be noted that we do not apply the provisions of art. 1012 § 3 of the Labour Code to such compensation, which specifies the minimum amount of compensation in the event of non-competition after termination of the employment relationship. The potential compensation may then be much lower, even symbolic than the 25% of remuneration provided for in the above-mentioned provision.

Another issue is that the employer does not have to agree to include this type of provision into the agreement. What is more, he will agree to this only if he really cares about a particular employee. However, it cannot be ruled out that the employer when facing such a dilemma will decide to give up his employee than sacrifice the company’s secret.

 

Legal status as of October 2019

 

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