A non-compete clause in the employment contract: how to draft one that protects the business and stands up

A non-compete clause often reaches employment contracts as a borrowed template: the same wording for a sales representative, a programmer and a warehouse worker, with a blanket ban on “any activity in the field”. Such a clause costs the business money, because compensation is payable for every restricted month, while protecting it poorly, because a court may narrow or cancel it. The Labour Code (Act No. 311/2001 Coll.) sets fairly precise boundaries for the clause. Anyone who knows them can draft a clause that protects what the business actually needs to protect.

Whom to give the clause to

An employer may agree with an employee a restriction on gainful activity after employment ends only where, during the employment, the employee has the opportunity to acquire information or knowledge that is not commonly available and the use of which could cause substantial harm to the employer.

— Section 83a(2) of the Labour Code (unofficial English translation)

What is decisive, therefore, is the information and knowledge to which the employee has access. Typically these are people who know the pricing and contractual terms of key clients, production processes, source code, products in development or commercial strategy. For a position without such access, the statutory condition is not met and the clause is pointless. The decision also has a budgetary dimension: if a departing employee observes a one-year clause for the whole year, the business will pay them, at the statutory minimum of 50% of average monthly earnings, at least six times those earnings in total.

How to define the restricted activity

The Act speaks of gainful activity competitive with the employer’s business, for a maximum of one year (Section 83a(1)). The restricted activity can and should be defined more narrowly. Where a ban is too broad, the court has a powerful tool:

Where the restriction on gainful activity agreed in the employment contract is greater than required by the employer’s necessary degree of protection, the court may limit or cancel the employee’s obligation under subsection 1.

— Section 83a(3) of the Labour Code (unofficial English translation)

When drafting the clause, it is worth answering four questions:

• What activity. The specific products, services or market segment in which the employee could use what they learned with you, not an entire field.
• Against whom. If the main risk is clients leaving, the clause can be aimed at your client base or at named competitors.
• Where. The territory in which the business actually operates.
• For how long. One year is the statutory maximum, not a required length. Where sensitive information dates quickly, a shorter period is cheaper and easier to defend.

Compensation and sanction

For each month of compliance with the clause, the employee is entitled to reasonable monetary compensation of at least 50% of their average monthly earnings, generally payable on the pay date for the preceding month (Section 83a(4)). For breach, a monetary payment by the employee may be agreed. It must not exceed the total compensation payable by the employer, is reduced proportionately on partial performance, and its payment extinguishes the employee’s obligation (Section 83a(5)). The sanction is therefore also the price at which the employee can buy their way out of the clause. Its amount, and management expectations, should be set with that in mind.

Form and timing

The employee’s obligation, the employer’s compensation and the sanction must form part of the employment contract, otherwise they are invalid (Section 83a(8)). A separate document with no link to the employment contract is therefore a risk. With a current employee the clause can be agreed by an amendment to the employment contract, which the employer draws up in writing (Section 54); the employee, however, is not obliged to agree. A collective agreement may define in advance the group of employees, the period of restriction, the minimum compensation and the cap on the sanction (Section 83a(9)).

Once agreed, the clause does not bind the employer with no way out. While employment continues, the employer may withdraw from it in writing; after employment ends, it may not. We cover this in detail in our answer on withdrawing from a non-compete clause. The opposite situation, where the employer does not pay and the employee terminates the clause by notice, is described in our answer on unpaid compensation for a non-compete clause.

What the clause will not cover

The clause addresses only the period after employment ends and only competitive gainful activity. Different rules apply during employment: the employee may carry on competitive activity alongside their employment only with the employer’s prior written consent, and if the employer does not respond to the request within 15 days, consent is deemed granted (Section 83(1)). The employee is also required to maintain confidentiality about matters that cannot be disclosed to others in the employer’s interest (Section 81(f)).

Information that is to remain protected after the employee leaves, and without a time limit, is protected by the law of trade secrets. That, however, requires the owner to keep it confidential “in an appropriate manner” (Section 17(1) of the Commercial Code): by restricted access, marking of documents and a confidentiality agreement. The differences between statutory protection and contractual confidentiality are explained in the article on trade secrets in Slovakia and Czechia.

Typical mistakes

• one clause for everyone, regardless of access to information;
• a ban on “any activity in the field” without defining the activity, the clients or the territory;
• compensation below 50% of average monthly earnings, or missing altogether;
• a sanction higher than Section 83a(5) allows;
• a clause in a separate agreement outside the employment contract;
• a forgotten withdrawal when an employee leaves whom there is no longer any need to restrict.

How we can help

We draft the clause for a particular position and risk, or revise the one you already use, through non-compete clauses and trade secrets. If you are updating your employment contract templates at the same time, we build the clause into them through employment contracts and employer documentation. The conditions of validity in brief are summarised in our answer on whether a non-compete clause is valid.