In the course of operations, the employer often invests significant resources in the development of its employees through trainings, licenses and acquisition of practical knowledge. These investments aim at the long-term advancement of the employer's business interests, but at the same time they also create a risk that such knowledge and business connections will be used after the termination of the employment relationship.
In order to protect these interests, the Law on Labor Relations provides for the possibility of a contractual prohibition of competitive action after the termination of the employment relationship, known as a competition clause.
Concept and legal basis of the competition clause
According to Article 37 paragraph 1 of the Law on Labor Relations, if the employee acquires technical, production or business knowledge during his work or in connection with his work, as well as business connections, the employee and the employer can agree in the employment contract on the prohibition of performing competitive activities after the termination of the employment relationship.
The purpose of this provision is twofold: on the one hand, to protect the legitimate business interests of the employer, and on the other hand, to create certainty for the employee that investment in his career will not be limited without a legal framework.
Benefits that justify the non-compete
The non-competition clause can only be agreed upon if the employee, during his work, acquires benefits that represent technical, production or business knowledge or business connections.
These benefits can result both from the performance of regular work tasks and from additional work-related activities such as employer-sponsored training, seminars and licenses.
Forms of non-compete
The standard competition clause refers to the prohibition of employment or cooperation with competing legal or natural persons after the termination of the employment relationship.
In addition to this form, a milder form is also found in practice – a ban on contacting the employer's business connections (non-solicitation clause). With this clause, the employee may work for a competitor, but may not use or contact the former employer's customers and business partners.
Consequences of non-compliance with the non-competition clause
If the employee acts contrary to the agreed competition clause, the employer has the right only to demand compensation for the actual damage suffered.
Damages may refer to specific financial investments in knowledge or training, but not to abstract or assumed profit. Court practice is clear that flat-rate amounts or agreed penalties cannot be the basis for a claim for damages.
Duration and Legal Validity
The competition clause can be agreed for a maximum period of two years after the termination of the employment contract.
It produces a legal effect only if the employment relationship has ended due to the employee's will or fault. In cases of termination by agreement or due to business and personal reasons by the employer, the non-compete clause is not applicable.
In addition, the clause must be expressed in writing and be part of the employment contract or an annex to it.
Compensation for compliance with the non-competition clause
The law stipulates that if compliance with the competition clause prevents the employee from earning adequate earnings, the employer is obliged to pay compensation.
The compensation must be expressly determined in the employment contract and must not be lower than half of the employee's average monthly salary in the last three months before the termination of the employment relationship.
If compensation is not agreed upon, the non-compete clause is considered legally invalid.
Termination of Competition Clause
The non-competition clause can be terminated by mutual consent of the employee and the employer, usually through an annex to the employment contract.
Also, the clause ceases to be valid if the employee cancels the contract due to a serious breach of contractual obligations by the employer, by submitting a written statement within the legally stipulated period.
The competition clause is an important instrument for protecting the business interests of the employer, but it is also strictly regulated by law and case law.
In order to be legally valid and applicable, it is necessary that it be clearly formulated, limited in time and contain adequate compensation. Otherwise, there is a serious risk that the clause will be declared invalid.
