Companies as employers can often find themselves in a situation where, for example, they are working on an innovative solution or are engaged in an innovative economic activity that may provide a business advantage, but for whatever reason the employee leaves the company with the knowledge they acquired at their previous employer.
To protect employers, non-competition agreements can be used in such cases, for a limited period of time, but can be an effective legal protection tool to protect the economic interests of the former employer.
Let’s look at the basic features of a non-compete agreement:
- By agreement between the parties, the employee may not, for a maximum of two years after the termination of employment, engage in any conduct that would harm or jeopardise the legitimate economic interests of his employer.
- The employer pays an appropriate consideration for the fulfilment of this obligation.
- In determining the amount of the consideration, particular account must be taken of the extent to which the agreement prevents the employee from taking up a new employment relationship, in particular in view of his/her qualifications and experience.
- The consideration for the duration of the agreement may not be less than one third of the basic salary for the same period.
- The non-compete agreement must be in writing.
- If the employee terminates his employment with immediate effect, he may withdraw from the agreement.
- In the event of a change in the employer, the rights and obligations arising from the agreement are transferred to the receiving employer.
- A penalty may also be stipulated, in which case the provisions of Act V of 2013 on the Civil Code shall apply.
However, we also need to pay attention to the details of the agreement, so that we can properly defend our employer’s interests in any litigation, so we also need to consider the following:
- the starting point for the clarification of the competitive situation is the data contained in the business register
- but it is also possible to prove against the data in the register of companies whether the new employer can be considered a competitor that threatens the employer’s legitimate economic interests
- when assessing the content of a non-competition agreement, in particular when determining the scope of the prohibited activity, the intention of the parties at the time of the conclusion of the agreement should prevail, and the scope of the prohibited activity should be carefully defined
- The prohibited scope of activity must be sufficiently circumscribed to protect the employer’s economic interests, but on the other hand, it must not unfairly and unduly restrict the employee’s gainful activity
- in the non-competition agreement, the consideration can only be monetary
- a comprehensive and carefully drafted agreement is of utmost importance, as a non-competition agreement will not be concluded if the parties do not agree on an essential point
- If the parties have agreed on a consideration in the non-competition agreement but later dispute its adequacy, and:
a.) the consideration is less than one third of the basic salary for the same period, the rules of partial invalidity shall apply,
b.) if the consideration reaches the legal minimum but the party does not find it proportionate to the limitation, the “adequacy” of the limitation is to be examined in the event of a claim of partial invalidity
In principle, as in many areas of civil law, non-competition agreements can be amended by mutual agreement between the parties.
In the event that the former employer’s business company is taken over by another business company, the rights and obligations arising from the non-competition agreement are transferred ex lege to the acquiring employer, as in the case of employment relationships.
