Constitutional Court more flexible on non-compete clauses in employment contracts

In May, the Constitutional Court dealt with the possibility of employers to withdraw from non-compete clauses. This court has a more liberal view of the matter than the Supreme Court which believes that an employer's withdrawal without giving a reason is invalid, even if such an option was explicitly agreed upon between the employer and the employee. The Constitutional Court has now ruled such a conclusion to be excessive and infringing upon the employer's rights. The decision could bring relief to many employers.

In the dispute in question, an employer and their employee had negotiated a non-compete clause under which the employee was not allowed to work for the employer's competitors for six months after the termination of their employment. For each month of this restriction, they were entitled to compensation equal to a half of their average earnings, and would have to pay a contractual penalty if the clause was breached. In the non-compete clause, the parties had agreed that the employer may withdraw from the clause, even without giving reason.

The employee gave their notice of termination, and, during the notice period, the employer used the option to withdraw from the clause without giving reason. The employee subsequently sought the invalidity of the withdrawal, invoking the Supreme Court’s case-law, and demanded payment of the compensation for observing the ban to compete. Ordinary courts sided with the employee: despite the explicitly agreed upon possibility of withdrawing from the clause without giving reason, the employer's withdrawal was held invalid. The courts primarily argued that withdrawal from the non-compete clause without giving reason may significantly infringe on the employee’s rights, as the withdrawal can be made, e.g., on the last day of employment, when the employee had already chosen their next job. The employer then brought the matter to the Constitutional Court.

The Constitutional Court held that a general impossibility for an employer to withdraw from a non-compete clause without giving reason was excessive, irrational, and infringing upon the employer's fundamental rights. Unlike the ordinary courts, the Constitutional Court emphasised the principles of autonomy of will and contractual freedom. At the same time, the court held that lifting the ban to compete was primarily in the interest of the employee, as the clause stipulated the employee’s obligation not to compete with the employer in their future economic activity and possibly also the obligation to pay a contractual penalty. Therefore, withdrawal from a non-compete clause cannot be automatically invalid.

The Constitutional Court nevertheless stressed that courts must continue to grant employees a higher level of protection against the arbitrary behaviour of employers. Therefore, the specific circumstances of a case should always be examined, especially whether the employer has not abused their right or acted arbitrarily. It will be necessary to take into account, among other things, when the withdrawal took place, the reasons for which the employer withdrew from the non-compete clause, and whether the employee chose their next job precisely with regard to the concluded non-compete clause.

The decision is a welcome liberalisation. It is the second ruling by which the Constitutional Court recently overturned the Supreme Court's strict approach to non-compete clauses. Please note that employees are not automatically banned from competing once their employment ends. If employers are interested in protecting their know-how, with their employees, they should conclude non-compete clauses that include reasons for possible withdrawals by either party. 

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