Is it possible to agree upon a non-competition clause for gainful activity which is not the same as the employer’s line of business?

29. 5. 2019

It is generally known that the employer may oblige the employee to refrain from any gainful activity which is the same as, or which would be of a competitive nature in relation to, the original employer’s line of business for a certain period of time (up to 1 year after termination of employment). In this context, however, it is necessary to refute the myth that the employee may only be limited in connection with the line of business based on the Commercial Register or a trade licence, because the definition of the line of business is often very vague, e.g. in the case of free trades, does not reflect the individuality of the labour relationship and does not necessarily have a competitive nature.

The Supreme Court of the Czech Republic has also stated in its recent decision on the question of the competitive nature of gainful activity according to which – although both the original and the new employer produce, offer or provide different products, goods or services – their conflict in the so-called product and service market cannot be ruled out, because even their supply can meet the demand of the same customers in the market choosing from different ways to satisfy their needs. The same applies to the so-called derived market of production factors, where their demand for natural resources, labour, supply services or real capital (buildings, machinery, equipment, means of transport, etc.) and financial capital (money, securities) may be in conflict. Therefore, it is decisive whether satisfying the demand of the new employer would significantly hamper the satisfaction of the same or similar demand of the original employer and thus the actual performance of its gainful activity. In other words, the subject of gainful activity does not necessarily have to be the same. What is crucial for the scope of the non-competition clause is the assessment of the competitive nature, i.e. whether the lines of activity and business do not overlap in a relevant area and whether “fight for customers” may arise which could seriously restrain the original employer’s activity.

In conclusion, a non-competition clause may be agreed upon as part of an employment contract when it is concluded, but also at any time later as a separate agreement. However, employers should always assess whether this is a gainful activity in which the employee is in contact with such competitively important information that a non-competition clause is permissible in the case. It should also be pointed out that the employer must commit in a non-competition clause to provide the employee with adequate financial compensation, otherwise it could be void.

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