The non-compete clause can be a useful tool for the employer when it is inserted practically and correctly in certain employment contracts.
It represents a protective measure taken by the employer to prevent possible unfair actions of the former employee. In exchange, the former employee receives a monthly compensation, which, as we will see below, is not at all negligible in value.
Therefore, the non-competition clause has both advantages and disadvantages for both parties, employee and employer, which is why I would not even recommend inserting it into all employment contracts, the goal being to be able to effectively capitalize on it. We will see below what this means exactly.
To make a correct decision regarding its application, the employer must know, in principle, all aspects of this clause and the legal procedure for its establishment.
II. WHAT IS A NON-COMPETITION CLAUSE?
The main purpose of the non-competition clause is to protect the economic interests of the employer, ensuring that after the termination of the individual employment contract, the employee does not practice, either in their own interest or in the interest of a third party, an activity that competes with the employer’s activity. In practice, this clause aims to ensure that key employees (those who have access to know-how, confidential information, trade secrets, lists of customers, suppliers etc.) do not go and offer or provide this information, know-how, skills or special, specific competences acquired at the workplace to direct competitors of the employer.
Within the employment relationship, there is already an obligation of loyalty that imposes on the employee:
- To provide fairness and professional discretion;
- To refrain from committing acts that may harm the interests of the employer;
- To pursue the interests of the employer and to avoid harming those interests.
This non-competition clause is somehow derived from the duty of loyalty and can be seen as an extension of it after the termination of the employment contract.
This clause has a clear benefit for the employer – i.e. extra protection of his business – but the disadvantage is that they must pay a monthly allowance to the former employee, for the entire period of validity of the clause, after the termination of the employment relationship.
III. HOW IS THE NON-COMPETITION CLAUSE CORRECTLY INTRODUCED IN THE INDIVIDUAL EMPLOYMENT CONTRACT?
The legal regulations are clear and strict regarding the non-competition clause, as it concerns a fundamental right of the employee – the right to work.
The provisions of the Labor Code thus provide several mandatory conditions:
- The clause must be expressly mentioned in the individual employment contract or be later included in an additional act;
- The clause is brought to the attention of the employee;
- The employee expressly and unequivocally accepts the clause.
Also, in the content of the individual employment contract that contains a non-competition clause, the following must be expressly provided:
- Activities prohibited to the employee – what activities are prohibited for them to be performed for another third party or for their own interest.
They must be indicated clearly and concretely, without vague mentions.
Example: It is forbidden to perform activity X from the employee’s job description.
- The value of the monthly compensation is provided for compliance with the clause.
According to the Romanian Labor Code, the allowance is negotiated and must be at least 50% of the average of the employee’s gross salary income from the last 6 months before the termination of the individual employment contract. If the duration of the individual employment contract was less than 6 months, the average gross monthly salary income due to the employee during the duration of the contract is considered.
- Third parties for which the employee cannot activate.
They will be detailed (even named, if possible) as third parties with whom the employer competes.
Example: Employee Y will not perform activities X in favor of Company Z; or Employee Y, will not perform activities X in favor of companies that have the following main activities: CAEN code 1, CAEN code 2, etc.
- The geographical area in which the employee will not be able to work during the validity period of the clause.
The geographical area must be a reasonable one, which does not make it impossible for the employee to exercise his specialization or profession.
For example, a mention in the individual employment contract that prohibits the exercise of the profession on the territory of Romania could represent a reason for the nullity of the clause.
- The period during which the clause will produce its effects.
According to the Romanian Labor Code, it cannot exceed 2 years.
IV. OTHER IMPORTANT ASPECTS OF THE NON-COMPETE CLAUSE
The employer must bear in mind that the payment of the monthly allowance is essential, and its non-payment could lead to the nullity of the clause by the court.
Also, the employer cannot unilaterally waive the non-competition clause and cannot terminate, without the consent of the former employee, the payment of the monthly allowance. If he does so, the employee will be able to ask the court to force the former employer to pay the allowance.
The refusal to collect the allowance cannot exempt the former employee from the provisions of the clause, which means that the former employee must comply with the limitations imposed by this clause, as long as the former employer complies with its obligation to pay the allowance, and the refusal to collect this allowance cannot constitute grounds for non-compliance with the non-competition clause.
V. EFFECTS OF BREACH OF NON-COMPETITION CLAUSE
The rights and obligations of the non-compete clause reflect on both parties, the employee and the employer.
Thus, if the former employee violates the provisions of the non-competition clause, they can be ordered by the court to pay damages, to the extent of the damage caused. Moreover, said employee can be held for the full or partial restitution of the compensations paid.
If the employer wants to claim damages, they must prove the damage caused by the former employee.
On the other hand, if the employer does not comply with their obligations, the former employee can go to the competent court, the dispute is considered a labor dispute, thus benefiting from all the legal provisions (speedy judgment of the case and exemption from judiciary taxes).
The non-compete clause comes with the advantage that it has the vocation to protect, from certain perspectives, the business whose foundations have been laid with a lot of effort, over a long period, and with a lot of expenses.
The disadvantage for the employer is that:
- it must be drafted with great care and in compliance with the legal provisions;
- it must not be likely to restrict the employee’s right to work;
- imposes on the employer the payment of a monthly allowance to a person who practically no longer produces anything for the business.
For the employee, the disadvantage is that they will no longer be able to work or practice in a direction in which they were probably specialized over the course of a long time, perhaps so much so that they lost contact with other fields or other areas of the same field.
When we think about whether or not this clause is worth inserting in individual employment contracts, we must take into account the costs but also the importance of the employee for the business of the employer with whom we want to have such a commitment.