Non-compete clause

What it means

A non-compete clause bars an employee from competing activity after employment ends. It can be agreed for at most one year.

Its validity depends on reasonable compensation from the employer, at least 50 % of average earnings for the restricted period. Without compensation the clause is void even if both sides signed it.

It is not the same as the ban on competing during the employment relationship. While the employee is still employed, they may carry on gainful activity in the employer’s line of business only with the employer’s prior written consent, and with no compensation at all. The clause covers only the period after they leave.

How it works in practice

It makes sense where the employee knows prices, margins and the customer base. On ordinary roles it is wasted money: the compensation is payable whether or not the person joined a competitor.

Alongside it sits an NDA, which protects information with no time limit and no payment. In many cases that alone is sufficient.

Compensation is paid in arrears for monthly periods over the whole restriction, so also in the months after the job has ended. During offboarding we therefore keep it in payroll as a recurring payment with an end date, so it is not forgotten and the former employee has no reason to treat the clause as broken.

What to watch out for

The employer may withdraw from the clause during employment but not the day after someone leaves. A contractual penalty for breach must be proportionate, or a court will reduce it.

The second problem is an activity defined vaguely or too broadly. The clause should state which activity the employee may not pursue; a general ban on “working in the field” is hard to defend in a dispute, even though the employer paid compensation all along. The wording is therefore tied to the specific line of business and to the Labour Code.