Competetion clause and non-poaching agreement

There is a shortage of skilled people on the labour market and real experts are not available. This leads to huge competition that never sleeps and can pull the most skilled workers to itself. Can this be countered?

In addition to a good company culture and favourable working conditions, there are legal protections. These are non-compete agreements and no-poaching agreements. You are not the first to ask how these agreements work and how to put them into practice in a fair and transparent way.

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Protection against competition

 

Non-competition clause for contractors (self-employed)

In the case of contractors, it can be agreed that for a certain period of time during or even after the end of the cooperation, the contractor will not carry out competitive activities towards the client. The non-competition clause should include the territory and the range of persons to whom it applies. The maximum duration of the competition clause is 5 years.

It does not follow from the law that the competition clause must be negotiated for a fee, nor does it exclude a contractual penalty for its breach by the contractor. However, the general rule is that it must not restrict the contractor more than is necessary to protect the client (e.g. in terms of information, know-how or trade secrets of the client to which the contractor has gained access through the cooperation, etc.). In the event of a dispute, a court could restrict, annul or declare void an unreasonably strict clause.

 

 

Competition clause for employees

Employees may not, during the term of the employment relationship, engage in gainful activity that is identical to the employer's business. At least not without the employer's prior written consent. This rule applies automatically under the Labour Code, so there is no need to negotiate it in the employment contract. The situation is different after the termination of the employment relationship. For the period after the termination of the employment relationship, it is possible to negotiate a competition clause with some employees (for a maximum of 1 year), but only for a fee (at least half of the employee's average monthly earnings for each month of the competition clause).

In addition, the range of employees with whom a non-compete agreement can be agreed upon after termination of employment is limited. A non-compete clause may be agreed only if the employee can be fairly required to do so, having regard to the nature of the information, knowledge, knowledge of working and technological processes acquired in the course of employment, the use of which in a competitive activity could make it seriously difficult for the employer to carry out its activities. Thus, it will be a narrow range of employees who have access to the employer's unique know-how, trade secrets or sensitive internal information (typically of a commercial nature, relating to the development of new products, etc.). A contractual penalty may be negotiated for breach of the non-compete clause (however, it is not recommended that this penalty be higher than the total amount the employer would pay the employee for complying with the non-compete clause for the agreed period of time).

 

Breach of a competition clause

If the employer finds that it is not satisfied with the non-compete clause, it can only withdraw from it for the duration of the employment relationship. Until recently, this option was limited by the Supreme Court to the point of being essentially unworkable in practice. After the later intervention of the Constitutional Court, we can rely on clearer criteria, but due attention must be paid to the correct formulation of the grounds for withdrawal from the competition clause. Finally, it should be added that the payment of the contractual penalty by the employee terminates the competition clause and the employee may engage in competitive activities (although it remains the case that in doing so he or she must not commit a breach of the rules relating to unfair competition). In practice, it can also be very difficult to establish and prove that the employee has actually breached the terms of the competition clause. The employer should therefore consider the use of this institute carefully.

 

No-poaching agreements

It is possible to agree (either with the contractor or with the customer) not to poach employees or other workers for a certain period of time (a so-called non-solicitation clause). The purpose of the clause is to ensure that one party does not "steal" the other party's key employees and thus effectively prevent it from continuing its business. Breach of this obligation may be secured by a contractual penalty (however, the party concerned may seek a reduction of the penalty in court in the event of a dispute if it is unreasonably high). This clause has its limits in that, in a market economy, it is in principle impossible to prevent the turnover of workers from one employer or other similar entity to another. However, it is at least possible to ensure that the other party does not attempt to deliberately target such workers.

 

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