Is a post-employment non-compete clause valid, and must compensation be paid?

When is the clause valid?

Section 83a of the Labour Code governs restrictions on gainful activity after employment ends. Several conditions must be met together:

• the restriction lasts no more than one year after employment ends (paragraph 1);
• it may be agreed only with an employee who had the opportunity to acquire information or knowledge not commonly available, whose use could cause substantial harm to the employer (paragraph 2);
• the employer must provide reasonable monetary compensation of at least 50% of average monthly earnings for each month of compliance (paragraph 4); this is a condition of validity, so an “unpaid” clause is invalid;
• it must form part of the employment contract, otherwise it is invalid (paragraph 8).

If the restriction exceeds what is necessary to protect the employer, the court may limit or cancel it (paragraph 3).

What contractual penalty can be agreed?

A contractual penalty may be agreed for breach, but it must not exceed the total compensation under paragraph 4, and payment extinguishes the obligation (Section 83a(5)). The employer may withdraw from the clause only while employment continues (paragraph 6); the employee may terminate it by notice if compensation has not been paid within 15 days after it falls due (paragraph 7).

Distinguish this from competition during employment

Competitive activity during employment is different: under Section 83, the employee may undertake it only with the employer’s prior written consent. If the employer does not respond within 15 days, consent is deemed granted.

We structure non-compete clauses to be enforceable and proportionate through our non-compete clause service, as part of employment contracts and documentation, linked to internal regulations and policies protecting know-how.