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A non-competition agreement may restrict an employee’s right to enter into an employment contract with an employer that is engaged in activities which compete with those of the employee’s former employer. A non-competition agreement may also restrict an employee’s right to engage in competing activities on their own account at the end of the employment relationship. A non-competition agreement can be concluded at the beginning of or during the employment relationship, but not after the employment relationship has ended. A non-competition obligation can be agreed for a maximum of one year. A non-competition agreement cannot be required to be signed, for example, during the notice period .
A non-competition agreement requires a particularly weighty reason related to the employer’s operations or the employee’s employment relationship. When assessing whether there is a particularly weighty reason for a non-competition agreement, the nature of the employer’s operations and the need for protection arising from the preservation of a trade secret or special training arranged by the employer for the employee are taken into account.
When assessing the weightiness of the reason, the employee’s position and duties and other similar factors are taken into account. It should also be noted that the employee is not bound by the non-competition agreement if the employment relationship ended for a reason attributable to the employer.
Contractual penalty
Failure to comply with a non-competition agreement may give the employer the right to claim damages from the employee. The employer is required to prove the amount of damages caused to the company and the causal link between the damage and the employee’s violation of the non-competition obligation.
A non-competition agreement may include a provision on a contractual penalty to be paid instead of damages. The amount of penalty may not exceed the salary for the six (6) months preceding the termination of the employment relationship.
Compensation paid to employees
Since the start of 2022, the employer must pay the employee a certain percentage of the employee’s normal salary during the employment relationship after the non-competition agreement has entered into force. The compensation must be paid for each pay period unless otherwise agreed between the employee and the employer after the termination of the employment contract.
If the non-competition period is:
up to six months, the employer must pay the employee 40% of the salary for the period of non-competition.
more than six months, the employer must pay the employee 60% of the salary for the period of non-competition.
Termination of a non-competition agreement
The employer may terminate a non-competition agreement during the employment relationship if the circumstances that led to signing the non-competition agreement change. The notice period of a non-competition agreement is 1/3 of the agreed non-competition period, but no less than two (2) months. However, if the employee has already resigned from the employment relationship, the employer can no longer terminate the non-competition agreement.
Non-competition agreements signed before 2022 are subject to a transition period.
Employees in a managerial or comparable position
The restrictions on the duration of non-competition agreements and maximum contractual penalties do not apply to employees who, on the basis of their duties and position, are considered to have managerial duties in the company, corporation or foundation or an independent part thereof, or hold an independent position directly comparable to such management duties.
Transition period for the legislative changes adopted in 2022
Non-competition agreements signed before 1 January 2022 are subject to previous legislation until 1 January 2023. As of the start of 2023, the new law will also apply to non-competition agreements signed before 1 January 2022.
However, an exception to the application of the new law are situations where the length of the non-competition agreement is more than six months and the employer has paid or has begun to pay reasonable compensation to the employee for the non-competition period in accordance with the older legal provision. In such situations, the old law will also be applied one year after the entry into force of the legislative changes.
Based on the transitional provisions, the employer also has the right, without a period of notice, to terminate non-competition agreements signed before the entry into force of the new law (before 1 January 2022) within a period of one year. Until the end of 2022, employers have the opportunity to terminate unnecessary non-competition agreements to avoid paying compensation in the following years.
