Is it possible to restrict a worker from working for competitors after the termination of employment? If yes, describe any relevant requirements or limitations.
Employment & Labour Law
The starting position for employers is that such an obligation is void as being in restraint of trade. However, employers can impose obligations (commonly referred to as restrictive covenants) that restrict where an employee can work after the termination of employment, provided that the purpose of such an obligation is to protect a legitimate interest of the employer and the obligation is no more restrictive than is necessary to protect this interest. Protection from competition itself is not a legitimate interest but the protection of confidential information, customer and supplier connections, goodwill and the stability of the workforce are all legitimate interests that can be protected. Restrictive covenants are commonly found in contracts of employment for directors and senior management employees, as well as those who have access to the employer’s confidential information, and/or to customers and suppliers and information about the employer’s dealings with them. The validity of restrictive covenants is assessed at the time employer and employee enter into them, and the employer should therefore regularly review them.
Yes. However, Irish courts are generally quite reluctant to enforce such restrictions unless they are satisfied that the employer has a legitimate interest to protect and the restriction does not go any further than is reasonably necessary to protect this interest. This is assessed by reference to the duration of the restriction, the geographical scope and the business to which it is stated to apply to. The employer must have legitimate reasons for seeking a restriction and such restriction should be as tailored as close as possible to the relevant employee’s role to increase the employer's chances of being able to enforce the restriction.
Yes, it is possible. However, any restrictive covenant imposed by the employer that acts as a restraint of trade is unlawful and unenforceable unless the employer is able to show that:
- there is a legitimate interest to be protected by the restrictive covenant; and
- the restrictive covenant is reasonable in the interests of the parties and the public.
The restrictive covenant should not be wider than necessary to protect the legitimate interest of the employer.
In determining its enforceability, the courts would consider all the circumstances of the case, including but not limited to the nature of the interests sought to be protected, period of restraint, the geographical restriction, as well as the seniority of the employee in question. The burden of proof is on the employer who is seeking to rely on such restrictive covenants to establish that the restrictive covenants are reasonable.
The extent to which a non-compete agreement is permissible by law varies by state. Generally, courts in states that enforce non-compete agreements hold that a covenant restricting the activities of an employee upon the termination of his or her employment with the employer will be enforced if it protects a legitimate business interest, is reasonably limited in scope, time and place, and is supported by consideration, and is reasonable.
The reasonableness of a restrictive employment covenant often is considered using the following six factors:
- Length of time the restriction operates;
- Geographical area covered;
- Scope of business covered;
- Fairness of and business need for the protection accorded to the employer;
- Extent of the restraint on the employee’s opportunity to pursue his occupation; and
- Extent of interference with the public’s interests.
Notably, in California and North Dakota non-compete agreements are invalid and unenforceable. Oklahoma law prohibits non-compete agreements, except that an employer may prohibit former employees from directly soliciting the sale of goods, services, or a combination of goods and services from “established customers”. Montana generally prohibits restrictive covenants except under certain narrow factual circumstances.
Yes, it is possible. To this effect, please take into consideration that non-competition agreements to be in force after the employment termination -which may not be higher than 2 years for technical personnel and 6 months for other employees- shall only be valid if the following requirements are met: (i) that the employer has a current industrial or commercial interest in such; and (ii) that the employee is paid an adequate economic compensation. According to the Spanish Courts rulings, an adequate economic compensation should be equivalent to 40% - 60% of the fixed gross annual salary per each year the non-competition obligation is in force.
Post-employment non-compete obligations against employees can be contractually agreed subject to compliance with the provisions of the Turkish Code of Obligations. According to Articles 444 et seq. of the said Code, covenants to non-compete can be regulated within the employment agreement or by a separate undertaking letter. Although such covenants are deemed as valid, the following cumulative requirements must be complied with;
- Non-complete obligations shall only be valid in the case the employee was in a position to obtain information regarding clientele, manufacture secret or commercial activities of the employer, and usage of such information by the employee is likely to cause significant damages to the employer.
- Non-compete obligations can be foreseen for a maximum period of 2 years(apart from special conditions)
- Non-compete obligations must be limited with a specific geographical area and scope of activity (e.g. products, service).
In the event that above-mentioned legal limitations are exceeded by the employer, Labour Courts have the discretion to completely annul or partially restrict the validity of such non-compete obligations.
No, it is not possible.
While an employer cannot unilaterally restrict the employee from working for a competitor after the termination of employment, the parties are principally free to agree on a post-contractual prohibition of competition.
In order to be valid, such non-competition agreement must fulfil the following requirements, however:
- The Employee must have been capable of acting when concluding the agreement;
- the agreement must observe the written form;
- the employment must have provided the employee insight into the employer's clientele or manufacturing and trade secrets and the use of such knowledge must potentially cause substantial harm to the employer; and
- the employer (still) has a substantial interest in the prohibition of competition (this interest ceases in case of a termination of employment by the employer without the employee having given it any good cause or in case of a termination of employment by the employee for good cause attributable to the employer).
Furthermore, the prohibited competition must be appropriately limited with regard to place, time and scope so that it does not unfairly compromise the employee's future economic activity. Excessive prohibitions of competition may be reduced at a court’s discretion.
Finally, it is important to know that the employer may only insist on the rectification of a situation that breaches the non-competition agreement if this is expressly agreed in writing and only to the extent justified by the injury or threat to the employer's interests and the employee’s conduct.
Yes, it is possible to a certain extent. In principle, workers have a contractual duty not to compete with their employer while employed, but their constitutional right to freedom of occupation needs to be respected after the termination of employment. Therefore, provisions in company rules or agreements that restrict employees from working for competitors after the termination of employment are only enforced by a court if they are reasonable in duration, geographic area, and scope of business or activity.
In Thailand, it is possible to restrict an employee from working for competitors of the employer or engaging in a business that is the same as or which is in competition with the employer’s business after the termination of employment. The precedent of the Thai Supreme Court suggests that such restrictive clause to protect commercial rights and benefits of employers, who may suffer from the loss if the employee breaches the restrictive agreement, is valid if the restriction:
- does not entirely prohibit or hinder the employee from making a living; and
- is enforced on specific restricted business and/or for a restricted time period which is considered to be fair.
Restriction can be either geographical, which prohibits the carrying out of the restricted business in a certain area, and/or for a specified time, provided that the geographical area and time specified is deemed to be fair. Nevertheless, in an event that the Court views that such restriction imposes too much of a burden on the employee, the Court has the power to alter the restriction at its discretion under the Unfair Contract Terms Act B.E. 2540 (“Unfair Contract Term Act”).
Under Indian law, restrictions on employment beyond the contractual term are not enforceable as it is a restraint of trade under the Indian Contract Act, 1872. An employer cannot restrict its employee from joining a competitor. However, courts in India have held that negative covenants of restraint during the term of employment, where the employee is bound to serve his employer exclusively, are not considered as a restraint under the Contract Act.
The prohibition against competing should be negotiated expressly. This can occur both at the beginning of the relationship as at the conclusion of it. An agreement of this kind will only be effective when it prohibits developing activities similar to those of the company for their own or for a company of the same category, during a specific period and in a reasonable territory.
A non-competition clause can be used in an employment contract. However, such clause would only be valid if the employee was at least 21 years old when he signed his employment contract, it is restricted to a limited period (one year is usually considered appropriate), location, nature and only to the extent required to protect the employer’s business.
Whilst the Labour Law provides for the use of non-competition clauses, there is no injunctive relief in the UAE courts so such clauses may be difficult to enforce.
Yes, the employer may restrict an employee from working for competitors after the termination of employment where the following requirements are satisfied:
A. Non-competition clauses or a non-competition agreement shall be concluded between the employer and employees who fall into the scope of senior managers, senior technicians, and the other employees who have the obligation to keep trade secrets of employers; and
B. the non-competition agreement shall not be contrary to any laws or regulations and shall include all the requisite contents like the scope, geographical range and time limit for non-competition (not exceeding two years), etc.; and
C. the non-competition behaviours are generally limited to work in any other employers producing or engaging in products of the same category, or to engage in business of the same category as this employer; and
D. the employer shall pay compensation legally for non-competition within the non-competition period by month.
If an employee violates stipulations of a valid non-competition, it must pay the employer a penalty for breaching the contract and continue to fulfil the non-competition obligation as agreed.
It is possible to restrict the employee from working for competitors through post-termination restriction covenants set out in the employment agreement or as a separate agreement. The post-termination restriction covenants are only valid if certain conditions are met. In principle, the post-termination restriction covenants should only be used when the employee’s position require such restriction, i.e. if there is an aggravated risk that the position handles, and is able to reveal, trade secrets. In addition to the above, post-termination restrictions are only enforceable if they are reasonable.
The duration of a non-competition covenant should not normally be nine months and shall not exceed 18 months. A non-competition covenant may be considered unfair if the employee does not receive compensation for the inconvenience the covenant imposes on the employee. According to an authoritative collective bargaining agreement and market practice, employees are entitled to the difference between their salary at the time of the expiry of their employment and the income they may earn from a new non-competing employment. This compensation is however capped at 60 per cent of the salary at the expiry of the employment.
A non-competition covenant is usually combined with a contractual penalty. The penalty is normally set between three and six monthly salaries for each breach.
The employer may prohibit a previous employee from working at a competing company if the employee is likely to use or disclose trade secrets of the employer even though the employer and the employee have not signed a non-competition agreement.
There is no statute that specifically defines or governs non-compete agreement. The general principles of contract law under the Korean Civil Code will govern and apply to the enforceability of non-compete agreements in Korea. In general, non-competes are contractually valid and enforceable as an agreement between contractual parties unless it violates the “catch-all” clause of the Korean Civil Code, which provides that “matters contrary to good morals and social order shall be null and void.” Korean courts will determine the enforceability of non-competes on a case-by-case basis taking into consideration all of the circumstances surrounding enforcement of the subject clause.
Since a non-compete clause may be in conflict with a person’s constitutional right to seek employment, Korean courts will scrutinize non-competes and will enforce non-compete provisions only if they are deemed to be reasonable and non-excessive.
In this regard, in determining validity of non-compete clauses, the Korean courts take into consideration various factors, among others, (i) the employer’s legitimate interest to protect by non-compete, (ii) the job description or position of the employee (e.g., whether the employee had access to or control over confidential information of the company); (iii) the scope of business the employee is restricted from engaging in; (iv) the scope of the restricted geographical area; (v) the period of non-competition; (vi) whether any compensation has been or will be provided to the employee in exchange for her non-compete obligation; (vii) the background and reason why the employment relationship terminated; and (viii) public interest. The employer’s legitimate interest includes the trade secret of the employer and other information and knowledge which only the employer possesses or holds and the employee agrees not to disclose to any third party.
Non-compete covenants are enforceable under French law as long as they are justified by the company’s legitimate interests, limited in time and space, financially compensated, and do not make it impossible for the employee to find another employment. The covenant may allow the possibility to waive the non-compete covenant upon termination, hence avoiding payment of the compensation.
Non-compete clauses are in general permitted in Austrian law; an employment contract can include a term stating that after leaving the company, the employee cannot engage in any activity that represents competition for the previous employer. However, they are to a large extent subject to restrictions. The maximum term for such a clause is one year. Furthermore, the clause must be fair and reasonable considering the subject, time and geographical scope; and any non-compete clause that strongly restricts the employee’s career advancement is ineffective.
Generally, this non-competition clause of the employment contract will only be valid if it meets three statutory requirements:
- First, the employer should not be a minor at the time that they enter the agreement
- Second, the clause may only limit the employee’s participation in businesses within the specific field of the trade of the employer for a period not exceeding one year
- Finally, the non-compete clause may not constitute an unreasonable restriction on further professional advancement of the employee in relation to the employer’s business interests
- Additionally, the employee must earn a minimum salary of € 3.320 gross per month (amount for 2017; special payments are excluded) as fixed by the Ministry of Labour, Social Affairs and Consumer Protection
The employer does have the option of terminating employment while maintaining the validity of the non-compete clause by continuing to pay the employee’s salary throughout the agreed, one-year, non-competition period.
It is possible to restrict a worker from working for competitors post-termination, but certain limitations apply. Canadian courts generally consider non-competition covenants to be in restraint of trade and prima facie unenforceable unless an employer can establish that the covenant:
- Goes no further than is necessary to protect the rights that the employer is entitled to protect;
- Does not unduly restrain the employee from making use of his or her skills and talent; and
- Is not contrary to the public interest.
The clause must be reasonable in duration, geographic scope and all other aspects (such as scope of activity covered) in light of the interest that the employer is seeking to protect. The clause must also be sufficiently clear and certain; ambiguous or vague clauses will likely be voided for uncertainty.
The employer is not entitled to use a non-competition clause to protect its competitive position, but only to protect proprietary interests, which, under the circumstances, reasonably need protection. The courts will not enforce a non-competition clause unless the employer can demonstrate that a non-solicitation clause is insufficient to protect the employer’s proprietary interest.
In Québec, an employer cannot rely on a non-competition covenant if the employer terminated the employment relationship without “serious reason” (i.e. just cause). An employer can rely on an otherwise valid non-competition provision if the employee resigns or if the employee is terminated for “serious reason”.
Another method for deterring departing employees from competing is the concept of ‘Golden Handcuffs’. Golden Handcuffs are essentially a financial punishment if the former employee competes. In Ontario, payments which are conditional upon compliance with non-competition covenants are generally not viewed as being in restraint of trade and therefore do not have to satisfy the rigorous ‘reasonable’ analysis to which Canadian courts will subject traditional restrictive covenants. Québec courts have rejected the Ontario approach, which British Columbia courts have sought to carve out a middle ground by holding that a conditional benefit clause may be in restraint of trade if it effectively prevents the employee from working in his or her chosen field.
Under Italian Law (Section 2125 of the Italian Civil Code) the post-employment non-compete covenants may be deemed valid and enforceable only if they:
- are specified in writing;
- set forth a specific consideration in favour of the employee;
- have a limited scope and geographical extent;
- have a specific duration, that shall not exceed three years (five years for “Dirigenti”).
In order to assess the validity of a non-competition covenant, it is necessary to ascertain whether the combination of its terms, extents and conditions prevents or not the employee from finding another employment and/or violates the employee’s right to preserve his/her professionalism.
Case law indicates that the following conditions need to be taken into account when making such evaluation:
- the contents of the covenant (particularly with regard to the scope and the geographical extent, to be assessed jointly); and
- the skill and experience of the employee.
The assessment must also take into account the amount of the consideration paid to the employee for his/her non-competition obligations.
The law does not provides for a specific amount of the consideration and the case law require that the compensation is “congruous” having regards to restrictions imposed to the employee’s professionalism and his/her right to work. Therefore the compensation has to be evaluated on a case by case basis, in the light of the other terms agreed (i.e. duration, scope, geographical extent and the skill and experience of the employee).
A non-competition clause is the clause by which an employee agrees not to carry out, as a self-employed person, similar activities to those carried out by his/her former employer after the termination of the employment contract, so as not to interfere with such former employer’s interests.
The non-competition clause is therefore only applicable in the framework of an employment relationship between an employee and an employer, and is triggered by the termination of the employment. The scope of application of such legal provision is moreover strictly limited, as it refers to any activity performed by a former employee as a self-employed person only. Such non-competition clause will therefore not cover situations where former employees carry out an activity as an employee under a contract of employment with a competitor.
Non-competition clauses are enforceable to the extent that they comply with the following legal requirements:
Such clause must be stated in writing in the employment contract or in any subsequent agreement. Failing to be written, the non-competition clause is null and void. Moreover, it is deemed null and void, if, at the time of signature of the contract of employment stating the non-competition covenant, the employee is under 18, or if the employee’s annual remuneration when he/she terminates the employment relationship does not exceed EUR 56,956.89 (at current index 794,54). In addition, the non-competition covenant is only enforceable if the restriction:
- Applies to a specific professional sector and to similar activities to those carried out by the former employer;
- Does not exceed 12 months starting on the date of the termination of the employment contract;
- Is limited to a geographical area (which may not extend beyond the territory of the Grand-Duchy of Luxembourg) where the employee would be in a position to effectively compete with his or her former employer, taking into consideration the nature of the concerned activities and their range.
The non-competition covenant is not enforceable if the employer has abusively terminated the contract of employment with immediate effect or has terminated the contract of employment in breach of the legal requirements governing the notice period.
It is possible to restrict a worker from working for competitors after the termination of employment for a max. period of two years if the agreement is concluded in writing, if this is necessary to safeguard a justified commercial interest of the employer and if it does not unfairly jeopardize the employee’s future career. However, the employer must compensate the employee with at least half of his former salary (including all bonuses). If the employee earns money during the period, the compensation is reduced if earnings and compensation together exceed 110% of the employee’s previous remuneration (125% if the employee had to move to another place due to the non-competition obligation). In practise, competition clauses are only seldom used due to the fact that the costs are usually higher than the employer’s interest in the employee not working for a competitor.
The Mexican Constitution includes the general principle of “freedom of work”, whereby an individual cannot be prevented from working or performing a lawful activity, unless there is a judgment stating otherwise issued by a competent court.
Based on the above, the general accepted interpretation is that non-compete obligations and in general restrictive covenants are not enforceable in Mexico. This interpretation would not vary, even if the obligation is limited to a certain period, territory, product or to identified competitors.
In practice, some companies in Mexico have entered into non-compete agreements, following the termination of employment with the employee, agreeing on a compensation for not engaging with a competitor. Although not completely effective, the agreement may be an incentive for the former employee to comply with the same while receiving the agreed compensation. In the event of a violation of the agreement, the company will be entitled to stop paying the agreed compensation and try to recover the compensation already paid, which normally is difficult.
Yes. A non-competition restriction will only be justified if there is a “particularly weighty” reason related to the employer’s business and operations or the employee's position and duties. Such agreement is usually considered valid e.g. if the employee’s duties relate to product development, research or other similar activities and the employee possesses information and know-how which is not in the public domain. Non-competition obligations are generally included in employment contracts of the more senior management of the company.
A non-competition agreement may restrict the employee’s right to engage in competing activities for a maximum period of six months from the end of employment. If the employee receives fair compensation, the restricted period may be extended to a maximum of one year. Although not defined by law and always determined on a case-by-case basis, “fair compensation” has generally amounted to between 50 % and 100 % of the employee’s last monthly salary per month exceeding the non-compensated first six months.
The restrictions on the duration of the non-competition obligation (and the amount of contractual penalty) do not apply to employees who are considered to be engaged in the management of the company or an independent part of it or have an independent status comparable to such positions. A managing director is always excluded from the limitations to applicability of the above restrictions.
The legitimate reason for concluding a non-competition agreement must be present both when concluding the contract and at the time of enforcing it. The assessment of the particular weight of the reason is made on an overall basis, considering the nature of the business, the need to keep a business or trade secret confidential, special training provided to the employee by the employer as well as the employee’s status and duties.
A non-competition obligation may not cover duties that do not need to be subject to competitive restrictions from the employer’s point of view. Neither is it allowed to enter into a non-competition agreement only in order to restrict normal, healthy competition or to prevent the employee from exploiting his expertise. Thus, with reference to the freedom of trade, the employee’s possibilities to make a living through work corresponding to his expertise and the right to freely choose the place of work will affect the assessment of the validity of the restriction. In general, the more restricted the non-competition obligation is, the more likely it will be found to be reasonable.
A non-competition agreement that has been concluded without a particularly weighty reason is considered void as a whole. However, if the covenant is for a longer time than is permitted by law, the covenant is void only to the part exceeding the statutory maximum limit.
Breaches of non-competition obligation may be backed up with a contractual penalty. The contractual penalty is always subject to agreement, whereas general tort law is applied to the breach in the absence of an agreement on contractual penalty. The contractual penalty may not exceed the employee’s pay for the six months preceding termination.