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 (3rd edition)
It is an employees' statutory obligation not to compete or engage in any unfair competition during the course of employment. After employment termination, there is no regulation dealing with non compete agreements. However, non compete agreements can be entered upon termination if the non compete term is for about 12 months, and a reasonable consideration is paid in exchange . It has been accepted that it should be never less of 70% of employee's monthly salary multiplied by the number of months for which the employee is requested to not compete.
Yes, the employer may restrict an employee from working for competitors after the termination of employment where the following requirements are satisfied:
- 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
- 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
- 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
- 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.
The Labor Code prohibits the worker from competing with the employer while the employment contract is ongoing. However, it is common for employment agreements and the termination agreement acts to include a non-competition obligation into the future. It is strongly discussed whether such prohibitions are enforceable as this affects the right to work and the free competition.
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.
It is possible to restrict a worker from working for competitors after the termination of employment for a max. period of two years, 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. This agreement has to be concluded in writing. The employer must compensate the employee with at least half of his/her former salary (including all bonuses and benefits). 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 or at least not enforced since the costs are usually higher than the employer’s interest in the employee not working for a competitor.
Yes. Even though no specific legislation governs non-competition clauses; Chilean courts and practice have recognized non-competition covenants are admissible under Chilean law under limited circumstances. The following requirements must be met:
- workers´ consent;
- a legitimate supporting reason to protect the business interest of the former employer (e.g. avoiding facilitation to direct competitors);
- a limited scope and time of effectiveness (maximum 2 years); and,
- consideration paid to the worker a compensation amount.
Yes, this is possible – however, the term of the non-competition provision must not be too restrictive in that the employee would not be able to find another job. In addition, the non-competition provision must either be set out in the employment agreement which was executed by the employer and the employee or in a separate agreement on non-competition.
Based on our review of supreme court decisions, a non-competition clause can be implemented if it does not limit an employee from obtaining a job and is not for an excessive period of time. In addition, where an employer has made payment to an employee so that it does not join a competitor, the court would enforce such non-competition provision/agreement and there have been courts decisions where the employee is required to return the payment made to them by the employer for the non-competition period.
Under Italian law, post-termination covenants not to compete - in order to be valid and effective - shall meet all the following requirements:
- the covenant is executed in writing;
- the term of the covenant does not exceed 3 years (this term is increased up to 5 years as far as employees holding the qualification of executive (“dirigente”) are concerned);
- the covenant duly specifies its scope;
- the non-competition obligations only apply within a given geographical area;
- the relevant employee is granted with a specific consideration, which is “fair” taking into account the actual extent of the non-competition obligations.
Whenever even one out of the above requirements is not met, the covenant is to be considered as being null and void (this does not apply if a term longer than the above maximum statutory ones is established as, in such a case, this is automatically “reduced” by operation of law).
Moreover, the covenant has to be deemed as being null and void whenever the actual extent of the non-competition obligations (in terms of their duration, scope and geographical area) is as such as to actually prevent the employee from finding an alternative job position.
An employee cannot be restricted from working for competitors after the termination of employment. Pursuant to the Contracts Act 1950, contractual clauses prohibiting this are void and unenforceable as they constitute a restraint of trade.
Under the WEA, it is possible to restrict or limit an employee’s freedom to take up a post with a new employer or to commence, operate or participate in other undertakings following the termination of employment. A non-compete clause may only be invoked in so far as it is necessary to safeguard the employer’s particular need for protection against competition. A non-compete clause may not be invoked for a longer period than 12 months following the termination of employment. A non-compete clause must be entered into in writing in order to be valid.
Such a post-termination restriction covenant can only be invoked if the employee resigns or is summarily dismissed or if the dismissal of the employee is objectively justified on the basis of circumstances relating to the employee. A non-compete clause cannot be invoked if the employee is made redundant.
The employer is obliged to give a written statement to the employee regarding whether and to what extent the non-compete clause will be invoked. The employer’s particular need for protection shall be explained in the statement.
A written statement must be provided within the following time limits:
- Within four weeks if the employee requests a written statement during the employment.
- Within four weeks if the employee resigns.
- Within two weeks if the employee is summary dismissed
- If dismissed due to circumstances relating to the employee, at the same time as the dismissal with notice is issued.
If the non-compete clause is invoked, the employee is entitled to his/her salary for the duration of the non-compete period. The employer may reduce the salary by up to 50% if the employee receives other remuneration during the non-compete period.
Non-compete clauses are valid provided that these are reasonable and limited as to time, place, and trade. In determining whether it is reasonable, the following are considered:
- protection of legitimate business interest of the employer;
- creation of an undue burden on the employee;
- injury to public welfare;
- reasonableness of the time, trade and territorial limitations; and
- reasonableness from the standpoint of public policy.
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, is supported by consideration, and is reasonable.
The reasonableness of a restrictive employment covenant often is considered in light of 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; andv
- Extent of interference with the public’s interests.
Notably, in California and North Dakota non-compete agreements are generally 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.
Mattos: Yes. Although the employment law does not provide for such rules, the case law permits the employer and employee to sign no-compete agreements under the following conditions:
A. The obligation is for a temporary period (usually from six months to two years)
B. The obligation is effective for a limited territory (usually restricted to the locations where the employee may have influence on the employer’s business)
C. The employer pays the employee a compensation for the non-compete period (this compensation must be reasonable considering the level or experience of the employee)
D. The obligation is enforced against limited businesses or competitors to which the employee cannot be engaged
E. There is a penalty for the parties in the event of breach (it should not be higher than the maximum compensation paid for the non-compete)
While the employee is under a statutory obligation not to compete with the employer during the course of employment, an agreement to prolong such restriction for a term after the termination of employment is also enforceable, provided that;
- Such agreement is made in writing (must be specific to the employee, a general reference to the employer’s code of conduct will not be valid),
- The employer has a reasonable interest in asking for such protection against competitors:
- The employee shall have access to the employer’s production, business secrets and its client portfolio
- The employer shall face the risk of incurring substantial losses due to the breach of non-compete covenant
- It does not include unfair restrictions on location and type of activities which put the economic future of the employee in jeopardy,
- Restricted activities should be directly related to the employee's job and limited to the job's subject matter.
- Restrictions should be geographically limited to the areas where the employer is actually conducting business activities; the scope of geographical area shall not be defined as wide as the whole of Turkey, and it shall not exceed the boundaries of the employer's actual sphere of activity.
- The restrictions are limited to a specific period of time; except under special circumstances, this shall not be more than two years.
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”)..
Swiss labour law recognises the use of non-compete covenants after the termination of employment (Articles 340 et seq CO). Such covenants must be agreed in writing and are only valid if the employee has had knowledge, within the employment relationship, of the employer's client base or of business secrets and if the use of such knowledge could cause serious damage to the employer.
Non-compete covenants must be reasonably limited in space and time, as well as in terms of the type of business concerned. Their duration can exceed three years only in very specific and rare circumstances. In practice, they generally last six months to a year.
If an employee breaches a non-compete covenant, they must repair the damage caused to the employer. If the employment agreement contains a liquidated damages clause, the employee must pay the penalty, in addition to any damage which might exceed the amount of the penalty, in order to be released from the non-compete covenant. However, the parties may agree that payment of the penalty does not release the employee from complying with the non-compete covenant. In addition, if they have reserved the right to do so in writing, the employer can also request before a court that the employee be ordered to cease any competing activity, including through interim measures.
In principle, a non-compete covenant ceases to take effect once the time limit has expired or if it is established that the employer no longer has a real interest in its enforcement. A non-compete covenant is also not applicable if the employer gives notice without good grounds or if the employee terminates the employment relationship for just cause attributable to the employer.
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 employee 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 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.
Restraint of trade covenants are not illegal under the illegal contracts provisions of the Contract and Commercial Law Act 2017, but are prima facie unenforceable at common law for public policy reasons.
The courts, however, have previously signalled that restraint of trade covenants are to be taken seriously by the parties that have expressly entered into them. Such covenants are amenable to enforcement by injunction to the extent that they are reasonable and otherwise lawful. Both the Authority and Employment Court have the power to issue interim and interlocutory injunctions to prevent breaches of restraint of trade covenants.
Restraint of trade covenants typically take two forms: ‘non-competition’ and ‘non-solicitation’.
A non-competition restraint will generally seek to prevent direct or indirect competition (to varying degrees) with the employer’s business for a specified period, and often in respect of a specified geographical area. Such restraint will only be enforced to the extent that it is necessary to protect an employer’s legitimate proprietary business interest, commonly a trade secret, client lists or financial information. A restraint will not be allowed to operate to protect an employer against mere competition.
A non-solicitation restraint will generally seek to prevent canvassing, soliciting or accepting business or work from customers/clients or suppliers of the employer with whom the ex-employee had dealings, or from soliciting or enticing an employee of the employer to cease employment.
Consideration is required for a restraint. Where the restraint is entered into at the same time as the employment relationship the remuneration is not necessary that any consideration over and above the remuneration for the underlying agreement be provided.
In determining whether a provision is enforceable, the courts will consider a number of factors including the nature of the proprietary interest that is sought to be protected, the reasonableness of duration and the geographic scope of the restraint, and considering the context of the employment agreement, and background and circumstances that existed when the clause was entered into.
Non-solicitation clauses are, generally, more likely to be upheld than non-competition clauses on the basis that that they are less restrictive. The enforceability of a non-competition or non-solicitation clause increases with the employee’s seniority, among with factors that increase the access which an employee has to the employer’s confidential information, clients or other proprietary interests.
A contractual non-competition clause as per the Luxembourg labour code is of little use: the employee (whose annual wages exceed a threshold at the end of his employment) agrees to not run a personal undertaking including activities similar to that of his former employer on the territory of the Grand Duchy of Luxembourg for a period of twelve months following the end of the employment contract with that former employer.
Contractual clauses on non sollicitation or poaching of clients and colleagues are however common and usually provide for financial sanctions.
Whether or not there is a contractual non-competition clause, unfair competition law applies.
Post-termination restraints on non-compete and confidentiality are expressly regulated and fairly common in Romania, however, being most frequently used for employees in senior management positions.
The non-compete undertaking is expressly regulated, however subject to several validity requirements. These include the obligation of agreeing the non-compete clause in the employment contract and the obligation of observing minimum clause content, including five mandatory elements:
- the activities restricted to the employee as of termination,
- the amount of the monthly non-compete indemnity (at least at the level provided by law which is 50% of the average monthly gross salary incomes for the last six months prior to the termination date),
- the non-compete period (not exceeding 2 years post-termination),
- the third party competitors (listed) and
- the geographical area where the employee can be in real competition with the employer.
In addition, the enforceability of a non-compete undertaking depends on the employment termination grounds. For example, where termination is on disciplinary grounds, a non-compete clause can be enforced but where the employee is made redundant, any previously agreed non-compete will not be enforceable.
Yes, it is possible through an agreement with the worker. However, although this is not regulated by law, our labour practice coincides that a correct used of said restriction would be subject to the following:
- It must be reasonable considering the person and his or her job position.
- It shall last for a reasonable period of time, for example two (2) or three (3) years maximum.v
- It has an economic compensation in return. In this regard, we must note that our legislation has not established a legal minimum.
- The scope of the restriction must be clearly established at the beginning or at the end of the employment relationship.
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.
Non-compete clauses are a common type covenant in the Netherlands. A distinction is made between non-compete clauses in fixed-term and open-ended employment contracts.
Non-compete clauses in open-ended contracts will in principle be valid, if the formal requirements are met. There are two formal requirements: the employee must be ‘of age’, i.e. 18 years or older, and the clause must be agreed with the employee in written form.
However, non-compete clauses in fixed-term contracts will in principle be invalid, unless the employer demonstrates in writing that a non-compete clause is necessary for substantial business reasons. These reasons must be included in the contract and in every following, subsequent, fixed-term contract, to prevent the clause losing its effect. The non-compete clause in a fixed term contracts can be declared void by courts, if the necessity for substantial business reasons is missing or if the employee is being unfairly prejudiced by the clause.
If the employee is seriously restricted from accepting employment elsewhere due to the non- compete clause, the court may decide to award compensation to the employee.
Non-compete clauses cannot be invoked by the employer if the termination of the contract is the result of seriously culpable conduct of the employer. The employee has no right to compensation, if the termination is flowing from serious imputable acts.
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.
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.
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. No additional payment is required and the maximum period courts are likely to enforce for the most senior employees is one year.
No, by Armenian legislation there is not possible to restrict a worker from working for competitors after the termination of employment.
Yes, non-compete agreements are enforceable in Korea. When determining the enforceability of non-compete provisions, Korean courts will consider various factors including, but not limited to:
- Whether there exists a legitimate and protectable business interest;
- The circumstances of the employee’s departure from the previous employer (e.g., termination, resignation);
- The durational and geographical scope of the restrictions;
- The employee’s access to confidential information while with the previous employer;
- The employee’s position, rank and responsibilities; and
- Whether the employee received consideration in exchange for the non-compete provision.
Based on such factors, if the court finds that an employee’s constitutional freedom of employment would be unreasonably infringed or violated, the court can invalidate the non-compete provision entirely or in part concerning the durational and geographical scopes.
In general, such restrictions are unenforceable and considered a restraint of trade unless the employer can demonstrate that it has a legitimate interest to protect, that the restriction goes no further than is reasonably necessary to protect that interest and that it is not contrary to public interest.
Therefore, post-termination restrictions should be drafted carefully and limited to what would be considered reasonable in terms of subject matter, duration and geographical scope.
Where an employer has genuine concerns about protecting its business from exiting employees, garden leave clauses allow the employer to enforce restrictions on an employee as the employee continues to have duties of fidelity and obligations towards his/her employer to protect confidential information. Increasingly, confidentiality and non-disclosure clauses and agreements are being used to restrict former employees when they join competitors.
A non-compete clause is subject to a contractual agreement between the employer and the worker during which the worker is not allowed to take employment with the employer's market competitor or to enter into business transactions regarded as competition to the employer, on his account or on the account of third parties.
Such contract may not be concluded for a period exceeding two years after the date of termination of the employment relationship. It may be an integral part of the employment contract and it must be concluded in writing.
It is important to mention that the contractual ban of competition is binding on the worker only when the employer is contractually committed to compensate the worker for the duration of the ban in the amount of at least a half of average salary paid to the worker in the three-month period preceding the termination of the employment contract.
When the worker terminates the employment contract by means of extraordinary notice for reasons of employer's serious breach of contractual obligations, the non-compete clause ceases to apply to the worker who within a month after the termination of the employment contract gives a written statement that he does not consider himself bound by this contract.
The non-compete clause ceases to apply if the employer terminates the employment contract without just cause, unless the employer notifies the worker within fifteen days of the termination of the contract that he shall compensate the worker for the duration of the contractual ban of competition.
It is not possible to restrict the right to work, since it is established in the Constitution of the State.
Non-competition clauses are enforceable if 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 extent of these limits depends on the activity of the employee and duties.
The employer can waive the non-competition clause upon termination, hence avoiding the payment of the compensation.
Breach of the non-competition clause by the employee is sanctioned by the reimbursement of the compensation, the application of a penalty clause, if any, and being liable to stop the competitive activity.
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, the 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.