SC further tightens conditions for withdrawal from non-compete clause
The recent Supreme Court (SC) judgement marks a further tightening of conditions for employers who decide to withdraw from a non-compete clause negotiated with their employee. According to the judgment, arrangements that give the employer the option to withdraw from a non-compete clause are invalid if they leave to the employer’s discretion whether the information gained by the employee during their employment is of such nature as to fulfil the meaning and purpose of the non-compete clause.
The Labour Code stipulates that an employer may withdraw from a non-compete clause only during the employee's employment. The SC has previously held that a withdrawal from a non-compete clause is subject to the provision of the Civil Code, under which a withdrawal from a contract is possible if the parties have so arranged or if the law so provides. From this we may deduce that both the employer and the employee may withdraw from a non-compete clause for reasons provided for by law or for any other reason agreed by the parties to the non-compete clause. However, the situation is not so clear.
In the present case, it had been among other things negotiated that the employer may withdraw from the non-compete clause during the employment if “within their discretion they conclude that, given the value of the information and knowledge of the working and technological procedures gained by the employee during their employment with the employer or otherwise, it would not be proportionate and/or reasonable for the employer to insist on or enforce the agreed-upon non-competition from the employer and to pay them the agreed-upon pecuniary compensation”.
The SC concluded that the employer could not have validly withdrawn from the non-compete clause for the reasons thus agreed. The court admitted that circumstances may arise after the conclusion of a non-compete clause where an employee has not gained information of such a nature for which the non-compete clause had been concluded, therefore the meaning and purpose of the non-compete clause was not fulfilled. The court also acknowledged that if the parties assume that such circumstances will or may arise, these can be agreed-upon as reasons for withdrawal from the non-compete clause. However, the court also noted that an arrangement that leaves to the employer's sole 'discretion' whether the employee has gained such information does not meet the applicable requirements: in the court’s opinion, the final effect of such an arrangement would be similar to the employer being given the option to withdraw from the non-compete clause 'without giving a reason' or 'for any reason', which not only is contrary to the law, but also manifestly disrupts public order. Hence, a withdrawal from a non-compete clause on such grounds shall be viewed as invalid, and such invalidity shall be taken into account by the court of its own motion.
In our opinion, the SC judgement brings further uncertainty to negotiating possible reasons for withdrawal from a non-compete clause: an employer is forbidden to decide subjectively, within their discretion, that the meaning and purpose of the non-competition clause has not been fulfilled given the nature of the information gained by the employee during their employment; yet the court does not provide any clear criteria to be followed by employers when assessing whether the reasons for withdrawal have been fulfilled.
Therefore, when negotiating non-compete clauses, employers are advised to carefully consider the reasons for which they will subsequently be entitled to withdraw from the non-compete clause. And when considering withdrawing, it is advisable to carefully assess whether the agreed-upon reason has been objectively fulfilled, as the Labour Code does not provide any limits as to negotiating the reasons for withdrawal, while the SC case law is extremely strict in this respect.