Prohibition of Competition

A post-employment non-competition agreement may restrict the employee's right to transfer immediately after the termination of the employment relationship to another employer engaged in competing activities or to engage in competing activities on his or her own account. The conclusion of a non-competition agreement is only permitted for a particularly weighty reason related to the operations of the employer in the employment relationship, which may be related to, for example, the protection of the employer's trade secrets. In assessing whether very serious grounds exist for instituting an agreement of non-competition, consideration shall also be given to the nature of the employer's operations and any need for protection related to keeping a trade secret or to special training given to the employee by the employer, and the employee's status and duties. A non-competition agreement is not valid if the condition for a particularly weighty reason is not met.

The employer is obliged to pay compensation to the employee during the non-competition period. If the restriction period has been agreed to be no more than six months, the employer must pay the employee compensation for the restriction period corresponding to 40 per cent of the employee’s salary. If the restriction period has been agreed to exceed six months, the employee must be paid compensation for the restriction period corresponding to 60 per cent of the employee’s salary. The restriction period may be agreed upon for a maximum of one year from the end of the employment relationship. The maximum duration shall not apply to persons who, in view of their duties or status, hold a managerial position or a position directly comparable to such.

Instead of compensation for loss, the agreement may include a provision on contractual penalty, which shall not exceed the amount of pay received by the employee for the six months preceding the end of the employee's employment relationship. The maximum amount of penalty shall not apply to persons who, in view of their duties of status, hold a managerial position or a position directly comparable to such.

It should be noted that circumstances may change during the employment relationship, for example due to a change in the employee’s duties, in such a way that there is no longer a legal basis for a non-competition agreement. In such situations the employer has the right to terminate the non-competition agreement within the notice period and thus avoid the costs of a non-competition agreement that has become unnecessary. The length of the notice period must be at least one third of the restriction period agreed in the non-competition agreement, but no less than two months. Dismissal can no longer be made after the employee has terminated the employment contract.

An agreement of non-competition does not bind the employee if the employment relationship has been terminated for a reason deriving from the employer and thus there is no liability for compensation either.