When is it possible to dismiss employees on the grounds of breach of the competition ban?

6. 12. 2017

Employees who perform self-employed activities on the side and compete with their employers may be dismissed. What are the conditions, however, when a breach of the prohibition of competition has occurred? The Czech Supreme Court has (rather unusually) sided with the employer in a recent case regarding a dismissal and defined the scope of the statutory competition ban.

In the given case, an employee set up a massage parlor while on maternity leave without a prior written consent of the employer and provided massages there. The employer, upon learning the fact, decided to terminate the employment of the woman in question, who had already been on a family leave on the grounds of breaching her obligations stipulated in Article 304 of the Czech Labor Code. The provision, however, only forbids an employee to perform business activities of the same nature as are those of the employer’s if the employer does not assent to it in writing.

The employee turned to a court with a request for the dismissal to be void; the main aspect of the case was the fact whether the self-employment activity performed by the employee (massage services provision) was of the same nature as that of the employer, who, in fact holds the business license for “provision of massage, recuperation and regeneration services”, but the Commercial Registry only contains the sole line of business being “practical dentistry”. It means that although the scope of the two businesses overlaps according to their trade licenses, they do not do in the Commercial Registry.

The Supreme Court, however, ruled that the statutory competition ban of an employee does concern all activities which the employer holds business (or another) license for and also activities which no licenses are required for by the law. Moreover, the breach of the obligation stipulated in Article 304 of the Czech Labor Law is in the sole consistency of the scope of the self-employment activity of the employee with the employer’s line of business - the fact how or whether the employer performs any activities in the line of business in question is deemed insignificant. The employee, then, violated the statutory competition ban in this case.

The fact that the activity concerned is not entered in the Commercial Registry of the employer may be seen as significant if the employee did not know and could not have known that they break the rules by their activities and also trusted the data in the Commercial Registry are full and complete. As the employee occupied a post of an executive manager, in the above case, she could hardly argue that the employer’s activity had been kept secret from her.  

The ruling of the Supreme Court also means that the fact that the employee started to perform her business activities at the time of her maternity leave is deemed insignificant as the competition ban has to be observed throughout the employment, i.e. including the time of a maternity/family leave.

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