Non-competition clause in the employment contract - when to apply?

Years ago, a ban on competition in an employment contract was rare, today it is commonplace. Most employers choose to use this method to reduce the damage that may result from a breakup or dishonest behavior. The non-competition clause in the employment contract used by the employer is to protect the know-how, methods, knowledge and also the customer's resources.

Non-competition clause in the employment contract - is it always in writing?

It often happens that non-competition is the only method that a trader can use to defend his interests. The parties have considerable discretion in establishing the exact rules of the non-competition clause, and due to the great importance of this clause, the non-competition clause should not be imposed on the employee unilaterally by his employer, but should be the result of negotiations and arrangements.

For the validity of the non-competition clause, it does not matter whether it will be concluded between the parties in the form of a separate agreement (i.e. in a separate document) or whether it will be a non-competition clause in the employment contract. In the opinion of the Supreme Court:

"There are no obstacles to include such a contract, also called a competitive clause, in an employment contract, but it does not mean that, as a result, the competitive clause becomes an element of the employment contract" - the judgment of the Supreme Court of November 12, 2003, issued in the case with reference number I PK 591/02. The non-competition clause may be established pursuant to a separate agreement between the employer and employee or by means of a clause in the employment contract. The Labor Code uses the term "competitive activity" without specifying the exact scope of this type of activity. In order to avoid possible misunderstandings related to the interpretation of this term, the parties to the contract should absolutely include the interpretation of this definition in it by indicating exactly what behaviors, activities and types of activities will constitute a competitive activity.

The extensive jurisprudence of courts shows that it is:

"Activity manifested in the same or the same subject scope and aimed at the same public, overlapping - at least partially - with the scope of the employer's primary or secondary activity. As a result, activities that violate or threaten the employer's interests may be prohibited. The term "competition" means rivalry, competition between entities or persons interested in achieving the same goal. Dealing with competitive interests is therefore tantamount to activities undertaken for profit or participation in commercial ventures or transactions, the effects of which relate (or potentially may relate), at least partially, to the same group of recipients " (see the judgment of the Court of Appeal in Gdańsk of October 11, 2012, issued in the case No. III APa 18/12).

For an activity to be considered a competitive activity, it is sufficient that the occupation 'at least in one aspect' is identical to the activity of the previous employer and that, as a result, competition concerns at least one market.

The omission of the definition of a competitive activity in the non-competition agreement will not render this finding invalid, but it may cause serious difficulties in the proper interpretation of the provisions of the agreement. In a conflict situation, each party will believe that its interpretation is correct and, as a result, the dispute between the former employer and employee will probably end in court. A non-competition agreement must be in writing. Agreements made between the employer and employee in any other form will be invalid. The most important requirement concerning the non-competition agreement concerns its form - the Labor Code provides that the non-competition clause must be in a written form, otherwise being null and void. This means that if the parties agree to use this solution in a different form (for example, on admission to work, the parties orally agree that the employee undertakes to refrain from performing competitive activities for one year after the termination of employment), such arrangements will not have legal effect. . The parties may use a form stronger than the written form - for example, a non-competition agreement may be concluded in the form of a notarial deed.

Prohibition of competition during the term of the employment contract

During the employment relationship, the employee - in accordance with the principles set out in the Labor Code and the obligations resulting from the employment contract - is obliged to look after the welfare of the workplace. Undoubtedly, the pursuit of a competitive activity would constitute a significant breach of that obligation. If the employee violates this rule, the employer may impose sanctions on him even if the parties have not concluded a separate non-competition agreement (cf. the judgment of the Supreme Court of June 18, 2007 issued in the case No. II PK 388/06). In particular, conducting a competitive activity - even without a non-competition clause - may constitute grounds for termination of employment.

In order to avoid doubts as to the exact duties and powers of the employee in the scope of conducting competitive activity, the entrepreneur should consider concluding a non-competition agreement with him. Pursuant to the provisions of the Labor Code, a non-competition agreement may refer to two aspects:

• conducting competitive activities;

• performance of work for an entity conducting competitive activity (both under an employment contract and under another contract, for example, a mandate contract, a specific task contract, a management contract).

Art. 101 § 1 of the Labor Code
"Within the scope specified in a separate agreement, the employee may not conduct any activity competitive to the employer or perform work under an employment relationship or on any other basis for the entity conducting such activity (non-competition)".

The non-competition clause in the employment contract cannot be arbitrary - the employer cannot prohibit the employee from conducting any other activity. As indicated above, the prohibition of competition covers only activities that are competitive to those carried out by the employer.

In the event of concluding a non-competition agreement during the term of the employment contract, the period of the prohibition may not exceed the duration of the employment contract.

The employer has the right to make the conclusion of an employment contract with a potential employee conditional on his consent to the introduction of a non-competition clause in the contract. The refusal to sign a non-competition agreement during the employment relationship may result in the termination of the employment contract. At the same time, the employee may refuse to sign the contract only if the employer tries to impose provisions in the contract that are contrary to the provisions of the Labor Code.

Non-competition after the end of the contract

The employer may conclude a non-competition agreement that will take effect after the termination of the employment relationship with the employee. Its conclusion is possible only when the employee, during employment, had access to particularly important information, the disclosure of which could harm the employer's interests. Art. 101 § 1 of the Labor Code
"The provision of art.101 § 1 shall apply accordingly when the employer and the employee, who has access to particularly important information, the disclosure of which could expose the employer to damage, conclude a non-competition agreement after the termination of the employment relationship. The contract also specifies the duration of the non-competition clause and the amount of compensation due to the employee from the employer, subject to the provisions of § 2 and 3 ".

The most important difference with the post-employment non-competition clause is the need to establish compensation to be paid to the employee by his former employer. It may not be lower than 25% of the salary received by the employee before the termination of employment for a period corresponding to the period of the non-competition clause - compensation may be paid out once or in monthly installments. The indicated amount is minimal, which means that the parties may stipulate higher compensation in the contract.

If the employer breaches his duty and fails to pay the employee the compensation due to him, the prohibition ceases to apply and the employee may take up a competitive activity.

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If the employee breaches the non-competition clause

Violation of the non-competition clause may result in serious consequences for the employee. As a rule, he is liable for the damage caused in this way under the provisions of the Civil Code. Injury will be understood as both the losses incurred by the employer and the benefits lost by him (for example, the wages that the employer could have obtained had his employee not engaged in a competitive activity).

A common practice is to stipulate a contractual penalty in a non-competition agreement that the employee will have to pay to the employer in the event of breach of the terms of the contract. The amount of the penalty may be determined in various ways, for example in the form of a specific amount or multiple wages. When determining the amount of the contractual penalty, it is worth remembering that it should not be grossly disproportionate (e.g. a millionth penalty in relation to an employee earning the minimum wage). In such a case, the employee will be able to demand its reduction in court.