Every employee gets acquainted with a lot of information that may potentially be attractive to the employer’s competitors. Employers may therefore want to protect themselves from a situation where the employee transfers the data obtained from the employer, or at least the details of the operation of the company, to other entities operating in the industry.
The solution offered by the Polish Labour Code is a non-compete agreement. Importantly, the employee and the employer can introduce a prohibition of competition both during the employee’s employment and after the employment relationship has ended.
Competition – what does it mean?
The concept of competitive activity is not defined in the Labour Code. In the case-law, competitive activity is understood as an activity that is actually carried out, addressed to the same audience and which at least partly overlaps with the activity of the employer and actually threatens his interests. (vide: Judgment of the Supreme Court of 12.09.2008, I PK 27/08, OSNP 2010, no. 3-4, item 34).
Prohibition of competition in the course of work
The introduction of a prohibition of competition requires the conclusion of a separate agreement. The prohibition of such activity does not result from the mere fact that the parties are bound by an employment contract. The contract may be drawn up in the same document as the employment contract, but it may also be concluded separately, e.g. during the employment relationship. In the prohibition of competition agreement, the Employee and the Employer agree that the Employee may not engage in competitive activities with the Employer or perform work within the framework of the employment relationship or on any other basis for the entity conducting competitive activities.
It is very important that the scope of the prohibition of competition is correctly defined. If the prohibition of competition agreement incorrectly specifies the scope of the activity which the employee may not pursue, this provision shall be null and void in whole or in part.
The employer and the employee may agree that compliance with the prohibition of competition will be free of charge, but they may also introduce a cash benefit that the employee will receive in exchange for compliance with the non-compete.
The prohibition of competition agreement should specify the territorial scope of that prohibition. If no such scope is specified, the prohibition shall be presumed to apply in the area where the employer has a genuine business, unless the circumstances require otherwise.
What if the employee violates the non-competition rule?
If the employee violates the prohibition of competition and the employer has suffered damage as a result, then the employer may seek redress on the basis of the principles set out in the Labour Code. If the employee has caused damage to the employer unintentionally, the employee’s liability for damages is limited to the amount of three months’ remuneration (Articles 114 – 121 of the Labour Code). However, if the employee caused the damage intentionally, then his liability for compensation is complete (Article 122 of the Civil Code).
Prohibition of competition after termination of employment
Labour law allows the conclusion of a non-competition agreement after the termination of the employment relationship. This agreement must also be concluded in writing. However, in the case of a non-competition ban, which will apply after the termination of the employment relationship, it may be concluded only with certain employees. These are those workers who have access to particularly important information, the disclosure of which could expose the employer to harm. Importantly, if these reasons cease, the prohibition of competition ceases to apply before the expiry of the period for which the agreement introducing it was concluded.
The non-compete agreement must specify the duration of the prohibition and the amount of compensation due to the worker for complying with the prohibition.
The agreement may stipulate that it may be terminated, as well as the terms and conditions of such termination. The Supreme Court also allowed the possibility of introducing a contractual right of withdrawal from such an agreement (see: Judgment of the Supreme Court of 26 February 2003, I PK 16/02, OSNP 2004, No. 14, item 239).
A person who agrees not to work for a competitor after the end of the employment relationship thus limits his opportunities to look for a new job. After all, it is from the competition that he/she would receive the most profitable proposals. That is why the employee must receive compensation from the employer for complying with the non-competition clause after the termination of the employment relationship.
The Labour Code sets the minimum amount of such compensation at 25 % of the salary that the employee received prior to the termination of the employment relationship corresponding to the non-compete period.
Compensation may be paid in monthly instalments (like previous wages for work), but it may also be paid in one-off instalments. When determining the amount of compensation, it must be remembered that it is reasonable and that the employer will certainly be able to pay such amount in the future. If the employer does not comply or ceases to comply with the obligation to pay compensation, the prohibition on competition ceases to apply before the expiry of the period for which the agreement introducing it was concluded.
What if a former Employee violates the non-compete rule?
A person who, despite the current prohibition on competition after the termination of the employment relationship, takes up employment with a competing entity, shall be liable for compensation under the general rules resulting from the Civil Code. A non-compete agreement may provide for a penalty agreement for breach of that prohibition
How can we help?
If you would like to learn more about the prohibition of competition agreement or would like to receive support in the implementation of the prohibition of competition agreement, please contact us.