A non-compete clause is a commonly used instrument in employment relationships. It is governed by the Labour Code, which sets strict conditions for its validity. The essence of a non-compete clause is the employee’s commitment that, after termination of employment – for a maximum period of one year – they will refrain from performing gainful activities that are identical to or competitive with the employer’s business. In return, the employer must provide the employee with appropriate financial compensation to offset the temporary restriction on their freedom to choose employment.
A non-compete clause must be agreed in writing. Termination or withdrawal from such a clause must also be made in writing. Under the law, the employer may withdraw from the non-compete clause only during the existence of the employment relationship.
The Supreme Court further developed the assessment of such withdrawal by an employer – or by a company in the case of a service agreement for a member of a corporate body – in its judgment of 27 January 2025 (Case No. 27 Cdo 1236/2024). In this case, the claimant, a former chairman of the board of directors of the defendant company, sought payment of compensation under a non-compete clause included in his service agreement. The agreement had been concluded only a few months before he resigned from his position. The company’s board first approved the termination of his office and later voted to withdraw from the non-compete clause, but only several months after the withdrawal notice had been delivered.
The court of first instance dismissed the claim, concluding that the withdrawal from the non-compete clause had been validly made. It rejected the claimant’s argument that the withdrawal constituted an abuse of rights. The claimant relied on case law of the Constitutional Court, according to which withdrawal from a non-compete clause may in certain circumstances be considered contrary to good morals and the principle of legitimate expectations. The appellate court confirmed this decision.
However, the Supreme Court stated that although there is generally no obligation to exercise a right immediately, previous inactivity (such as failing to approve the withdrawal promptly) followed by later exercise of the right (for example convening the board months later) may constitute an abuse of rights under the Civil Code if specific circumstances indicate this. According to the Court, the lower courts failed to consider that the company had been aware of the termination of the claimant’s position for a longer period and had not informed him in advance of its intention to withdraw from the non-compete clause. The contractual possibility to withdraw from the clause does not exclude the possibility that such a right may be exercised abusively.
What can be taken from this decision?
Even in cases involving withdrawal from non-compete clauses, general principles of private law may apply. These principles may also be invoked outside traditional employment relationships where a power imbalance between employer and employee exists. Abuse of rights in withdrawing from a non-compete clause may therefore also occur in relations between a company and a member of its governing body. The fact that a board member is not considered the weaker contractual party is not decisive. The protective function of employment-law instruments is thus extended to other forms of professional activity.
