Prohibition of competition in labour relations

An employer who operates on the market as an economic operator may safeguard his interests against possible undesirable behaviours of current employees and former employees by signing non-competition agreements with them.

A non-competition agreement may be concluded for the duration of the employment relationship and for a fixed period after the termination of the employment contract.

This study aims to approximate the solutions contained in the Labour Code[1] ((c) and in the interpretation of certain statutory conditions in the case law of the Supreme Court.

Introduction

According to Article 1011-1013 k.p., the parties to the employment relationship may conclude non-competition agreements of two types: during the duration of the employment relationship, i.e. for the duration of the connecting party to the legal relationship (competition prohibition agreement type I), after the duration of the employment relationship for a limited period in such a contract (competition prohibition agreement type II).

With respect to first from those contracts to the extent indicated therein, the employee shall not engage in activities which are competitive to the employer or provide employment in the employment relationship or on any other basis to the entity carrying out such activity.

An employer who has suffered damage as a result of an employee's breach of the competition ban provided for in such a contract may claim compensation from the employee under the conditions laid down in the rules on material liability based on the principle of fault.

However, the employer in the event of a breach of the competition ban resulting from the non-competition agreement first type, has the right to terminate the contract of employment with the employee in a manner Article 52 k.p. (without notice by employee).

In relation to the Agreement second the type, after the termination of the employment relationship, the employer may prohibit the conduct of a competitive activity only to an employee having access to particularly important information, the disclosure of which could put the employer at risk.

The basis for determining the regularity of the prohibition of competition after the cessation of employment is the conclusion of an additional contract during that relationship.

After the termination of the employment relationship, it is only possible to conclude a civil law contract of a content similar to that of the prohibition agreement.

A non-compete agreement shall specify: first, what is meant by competitive activity, after second, to which the employer cannot provide work, after third, the duration of the contract and after fourth, the amount of compensation due by the employer.

Non-compete agreement

In the Supreme Court ruling of 3 November 1997[2] it was argued that ‘the refusal of a worker to sign a contract to prohibit competitive activities does not justify the termination of a contract of employment if the draft of that contract submitted by the employer contained provisions which were incompatible with the provisions of the General Tax Code; there is no contradiction in such a situation between a worker’s claim for compensation[3] with the principles of social and socio-economic coexistence, the purpose of the law because the worker has taken up economic activity.

This means limiting the freedom of the employer in this respect, so that he cannot exercise his rights in a way that harms the employee.

It follows, therefore, that any irregularity (inconsistency with the law) concerning the content of a non-competition agreement may lead to the inability of a worker to conclude it in accordance with the above-mentioned reasoning of the Supreme Court.

With regard to the scope of the prohibition of competition, it must be borne in mind that, in principle, freedom of work[4] it is clear that the worker has the right to engage in gainful activities, including additional employment, unless this does not prejudice the obligation to care for the good of the employer.

It should be made clear that the contractual prohibition of competition cannot de facto result in the prohibition of any work or economic activity. The prohibition of competition must not lead to the actual exclusion of workers from the labour market.

It is worth to refer to the claim made in the Supreme Court judgment from 2 April 2008[5], According to which ‘a non-competition agreement for the duration of employment may prohibit the taking of additional employment, but only to an entity competing with an employer.

The prohibition of competitive activities must be applied to the subject matter of the employer’s activities, so that the non-competition agreement cannot contain provisions that would oblige the employee not to undertake (additional employment) activities not covered by the employer’s activities.

It follows from the above that it is necessary to construct the scope of the competition ban, which actually corresponds to the scope of the employer’s activities. Therefore, it is not possible to effectively require an employee to be inexperienced in entities operating in sectors (range) in which the employer does not carry out any real activity.

Refusal to sign a non-competition agreement may in certain cases lead to a definitive or even disciplinary dismissal, since the performance of a competitive activity after the employee has refused to sign a non-competition agreement despite the employer's opposition is a conscious breach of the employee's obligation to care for the welfare of the undertaking contained in the Article 100(2)(4) k.p.6.

Elements of the agreement were the prohibition of competition

The non-competition agreements should indicate the territorial scope of the agreement, which should in practice coincide with the employer's business activities carried out and planned[7]. It should also be pointed out that the non-competition agreement should have a clause of duration.

The mandatory elements of the non-competition agreement for the duration of the employment relationship are therefore to determine the duration of the contract (at the latest until the date of cessation of the employment relationship).

With regard to the non-competition agreement after the termination of the employment relationship, it should be considered as a normative term contract. Similarly, the Supreme Court stated in its judgment of 28 March 2002[8]. However, it must be borne in mind that it may be terminated earlier by means of a satisfactory declaration by the parties or only one of the sides.

As the Supreme Court pointed out in its judgment of 28 March 2002[9]. The statement of reasons for that judgment states that this applies to situations where the exercise of the right of withdrawal has been limited to the termination of the employment relationship.

The reservation of the right of withdrawal at a later date, especially as regards the employer, would, in the opinion of the Supreme Court, require consideration of the circumstances of a particular case.

On the other hand, the reservation — in the connecting party to the non-compete agreement after the termination of the employment relationship — of the right of withdrawal without a deadline for the exercise of that right is invalid, as indicated in the Supreme Court case law[10].

The mandatory elements of the non-compete agreement after the termination of the employment relationship are to determine the amount of compensation due to the former employee, except that the contract providing for an unpaid prohibition of competitive activity after the termination of the employment relationship is not invalid, but the free-of-charge clause is automatically replaced by the compensation guaranteed in Article 1012(3) This argument was justified in the Supreme Court’s judgment of 17 December 2001[11].

The method of calculating the amount of compensation due to an employee has been left to the will of the parties entering into a non-competition agreement after the cessation of employment, except that this compensation cannot be lower than 25% the remuneration received by the employee before the termination of the employment relationship for a period corresponding to the duration of the competition ban. In this context, the expression ‘remuneration received by an employee before the termination of the employment relationship for a period corresponding to the duration of the prohibition of competition’ shall be understood literally as the sum of the net remuneration received by the employee for the period preceding the termination of the employment relationship corresponding to the period of the prohibition of competition.

Representation of the employer when concluding a non-competition agreement

Where a non-compete agreement is concluded with an employee who simultaneously serves as the sole member of the board of directors of a limited liability company, reference should be made to the content Article 210 Act on 15 September 2000 Commercial Companies Code[12] (continue k.s.h.).

According to section 1 that provision, in the agreement between the company and the member of the management board and in the dispute with it, shall be represented by the supervisory board or by a proxy appointed by a resolution of the meeting of shareholders. Provision Article 210 § k.s.h.

does not differentiate legal acts, so it applies to all contracts between the company and a member of its board of directors, whether or not they are related to the function it performs on the board of directors of the company, which has been established in the Court’s view

The highest expressed in the decision with 11 March 2010[13]. It therefore also concerns the need for the company to conclude a non-competition contract with a member of the board of directors, who is its employee.

Representation of the company by the Supervisory Board shall in principle mean joint action, through all its members, as a collegiate body, unless the agreement of the company, the rules of procedure of the Supervisory Board or the resolution of the Supervisory Board confers an authorisation for one (some) from members of the supervisory board to represent the company in a contract (and in dispute) with a member of its board of directors.

The existence of the Supervisory Board shall not preclude the appointment of a resolution of the special proxy meeting.[14]. The decision which of the Article 210(1) k.s.h.

entities (supervisory board or proxy) represent the company to the members of the Management Board, may be carried out in the company's internal files (in the company's contract, resolution of the shareholders' meeting). In the absence of such a regulation, the company of o.o.

in which the Supervisory Board was appointed) in matters relating to labour law towards members of the Management Board may, in principle, be represented by both the Supervisory Board and a proxy appointed by a resolution of the Assembly of Associates, as indicated in the Supreme Court judgment of 4 August 2009[15].

Summary

In a non-competition agreement, an employer may not prohibit an employee from carrying out any activity. Employers are only allowed to prohibit employees from competing with their own businesses.

The scope of the competition prohibition imposed on an employee should be defined specifically and as precisely as possible, by reference to a particular set of products or services and not to any analogous activity.

The adoption in the competition ban agreement of restrictions on the freedom of employment of workers, including work for organisational or economic structures not having the character of a legal entity, would go beyond the permissible scope of the competition ban