THE COUNTER-VALUE OF THE NON-COMPETITION – HOW, WHEN AND HOW MUCH SHOULD THE EMPLOYER PAY?

I. If the employer and the employee do not agree thereon either in the employment contract or a separate agreement, then the employee shall not perform the above obligation. This fact is of major importance from the employee’s perspective, since the economic interests of the employer are already theoretically endangered, if the employee concerned will be hired by a concurrent employer.

II. The non-competition clause

If the employee is employed in such a position, which renders justified, that the employee – following the termination of the employment relation – do not recommence immediately the work at a concurrent employee, then it is possible that the parties enter into a non-competition agreement. The essence of this is that the employee – for the term of maximum two years after the termination of the employment – may not show such a behaviour, which would jeopardize or harm the lawful economic interests of his/her employer. Such an agreement comprises a significant restriction to the employee, of course, since as a result thereof, the employee may not undertake any job in the positions and at the employers specified, which may be harmful to his/her financial existence.

III. How much shall be paid?

1. With regard thereto, the legislative prescribed that the employee shall be entitled to an appropriate compensation for the performance of the above obligation. While determining the counter-value, the parties have to take into special consideration to which extent the agreement will hinder the employee – with regard primarily to his/her qualification and practice – in establishing a new legal relation aiming at the work. The larger the restriction is, the higher the amount shall be in order to qualify as appropriate. If, for instance, under the given circumstances it becomes practically impossible that the employee have a new job on the labour market, then the proportionality requirement is only met by providing a full compensation or a compensation close thereto. The Labour Code – like a guarantee – defines a minimal amount which may not be lawfully lowered by the parties: the counter-value for the duration of the agreement may not be lower than one third of the base salary due for the same term.
2. It is important that the counter-value mean an actual compensation for the employee, therefore, the base salary cannot be interpreted in such manner, that it includes also the counter-value paid for respecting the non-competition obligation. Otherwise, the employee would be bound by such an additional obligation, which is harmful to him/her, and for the performance of which he/she would not be paid any counter-value. The amount paid in accordance with the non-competition agreement should not be deemed as salary. With regard thereto, if the counter-value of the noncompetition is determined on the basis of the amount of the base salary, it shall be indicated and handled separately.

IV. When shall the amount be paid?

The counter-value of the non-competition can be paid in different ways, based on the agreement of the parties. Disbursement of the counter-value can take place monthly throughout the existence of the employment relation, however, the drawback of this solution is that the time of termination usually cannot be foreseen. Thus, the volume of the amount paid in such a way is fortuitous, not necessarily complies with the duration of the prohibition. In the case of a longer, several year employment relation it can easily occur, that the employer pays to the employee a higher amount as the counter-value of the non-competition than it would pay if the counter-value would not be paid monthly, but only at the termination of the employment relation. Due to this reason, the more common and for the employer the more favourable solution is when the payment of the counter-value occurs upon termination of the employment relation as a lump sum single payment, or subsequently, in instalments, on a time pro rata basis. The advantage of such a solution is that the employer is free to decide whether it intends to apply the non-competition under the given circumstances. Should the employer decide on application of the non-competition, the risk of “overpayment” is not present. In the case of payment in instalments, if the employer ceases paying the counter-value in the meantime, then the non-competition limitations do not bind the employee either anymore. Of course, the employer cannot be exempted from paying the amounts which already became due.

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