What types of restrictive covenants are recognised and enforceable?

Angola
Miranda & Associados

Both the General Labour Law (2/00) and the new General Labour Law (7/15) address agreements between employers aimed at restricting the hiring of employees. The laws provide that employers shall “not enter into or adhere to agreements with other employers aiming at the limitation in the hiring of employees who have rendered services to them, and not to hire, under penalty of incurring in civil liability, employees still included in the personnel list of another employer, whenever such hiring would result in unfair competition”.

Armenia
ELL Partnership LLC

Restrictive covenants are not recognised or enforceable in Armenia. 

Austria
Graf & Pitkowitz

Austrian law permits employers and employees to agree to restrictive covenants.

Under Section 7 of the Employee Act, an employee cannot perform any competing activity during employment without the consent of his or her employer. Any breach of this requirement is cause for summary dismissal.

Restrictive covenants pertaining to post-termination periods are unenforceable if:

  • the employer unilaterally terminated the employment relationship and provided appropriate notice (not applicable to summary dismissal); or
  • the employee terminated the employment relationship with immediate effect due to a breach of contract by the employer.

In the case of termination, an employer can still enforce a restrictive covenant by offering to pay the employee’s full salary during any restrictive period. In all other cases (eg, where the employee resigns without cause), non-compete clauses are enforceable and employers need not offer to pay the employee’s salary during the restrictive period. 

Belgium
Van Bael & Bellis

Non-compete clauses and clauses prohibiting the solicitation of employees and clients are recognised and enforceable.

Other restrictions are set out in the Law on Employment Contracts and are thus always applicable:

  • All employees are subject to Article 17 of the Law on Employment Contracts, which provides that – both in the course of employment and after its termination – an employee must refrain from revealing any trade or business secret or any secret of a personal or confidential nature that has come to his or her knowledge in the performance of his or her duties.
  • All employees must abstain from engaging in unfair competition. In case of violation of this obligation, the employer may sue for damages.
  • Article 309 of the Criminal Code also provides for specific criminal penalties where an employee reveals any technical secrets of his or her employer with fraudulent intent.

Canada
Miller Thomson LLP

Canadian courts will enforce only restrictive covenants which are reasonable with regard to the geographic scope, duration and subject matter of the covenant and the nature of the employee’s employment. 

France
Seyfarth Shaw LLP

The main types of restrictive covenant are:

  • non-compete clauses;
  • non-solicitation clauses;
  • non-poaching clauses; and
  • a confidentiality obligation. 

Germany
Vangard

During an ongoing employment relationship, an employee cannot act as or work for a competitor of the employer.

Post-contractual non-compete obligations can be agreed for up to two years following termination of employment. For each year of the post-contractual non-compete obligation, the former employee must be paid compensation in the amount of at least 50% of the last payment of remuneration made under the employment contract.

Non-solicitation clauses are also commonly used to prevent employees from being enticed away from the company. However, agreements between employers not to hire each other’s employees are not enforceable. 

Iceland
Logos Legal Services

Non-compete clauses and non-solicitation clauses are recognised and enforceable. According to case law, these provisions are valid as long as they accord with the Act on Contracts, Agency and Void Legal Instruments (7/1936).

Other restrictions are set out in the law.Bottom of Form According to the Act on the Surveillance of Commercial Practices and Marketing (57/2005), anyone with knowledge or control over professional secrets may not provide such information without permission for three years following the end of his or her employment. Anyone who has been entrusted with plans, descriptions, recipes, models or the like is forbidden from using this information for himself or herself or providing such information to others without authorisation.

In addition, a non-statutory rule applies, which states that employees may not discuss anything that they learn at work which might harm their employer.

India
Kochhar & Co

Non-compete agreements are not enforceable against employees. Non-solicitation agreements have limited enforcement between two organisations, but not against employees. However, the law on non-solicitation agreements is not well developed. It is possible to have employees sign an employee bond – if the employee is provided with substantial training at significant cost, the employer can require him or her to remain with the organisation for a reasonable period. If the employee leaves prior to the expiry of this period, he or she will be required to repay the actual or reasonable costs incurred by the employer for such training. 

Israel
Barnea & Co

The Basic Law: Freedom of Occupation provides for an almost unconditional right to freedom of occupation. Accordingly, restrictive covenants (ie, non-compete clauses) are enforceable only when the employer can prove a breach of its constitutionally protected rights (eg, property rights). For example, a non-compete clause may be enforced where an employee has used the employer’s trade secrets or receives special compensation for not competing – provided that the clause applies within a reasonable scope and period of time.

A confidentiality clause may be more broadly drafted, applicable for an unlimited period until the information concerned becomes public knowledge; it may also be enforced more easily as it does not infringe on freedom of occupation.

Japan
Iwata Godo

Non-compete, non-poaching and confidentiality agreements are generally recognised and enforceable. Criminal penalties apply under the Unfair Competition Prevention Law in order to punish the disclosure of trade secrets by employees and officers. Although no express statutory rules govern confidential information, employees are bound by a general duty of good faith and a duty not to disclose the employer's confidential information; however, the extent of these duties is unclear.

Luxembourg
Loyens & Loeff

A balance must generally be struck between the freedom of occupation – which is a fundamental constitutional right – and the legitimate interest of employers to protect their business.

Luxembourg courts recognise non-solicitation and non-compete covenants, provided that they comply with applicable law and are reasonable in time, scope and geographic coverage.

Mozambique
Miranda & Associados

The Labour Law includes no rules on restrictive covenants – in particular, non-compete agreements. As the Constitution sets out that each citizen has the right to choose his or her job freely, restrictive covenants are unenforceable.

Netherlands
Shearwaters

Employment agreements often contain restrictive covenants imposing confidentiality, non-solicitation and non-compete obligations on employees (both during the employment and after termination thereof). Such covenants are often combined with penalty clauses; these covenants and penalty clauses are generally enforceable under law.

Two rules must be met to validly enter into such covenants:

  • The restrictive covenant/non-compete clause must be agreed in writing and signed by both parties.
  • The employee must be at least 18 years of age at the time of signing.

Since January 1 2015, a non-compete clause is void if it is included in a fixed-term employment agreement without clear justification based on articulated, substantial business interests.

Where a non-compete clause clearly sets out the scope of the prohibited activities, a reasonable geographical scope and a reasonable and specified duration (ranging from a number of months to several years), it will usually be upheld by the courts, except in specific individual circumstances.

A request to enforce a non-compete clause may be restricted or denied by the court. The court may also deny a request of the employer to enforce a non-compete clause if an employee would become too restricted in finding a new job as a result of the non-compete clause. A non-compete clause may become invalid if the responsibilities ensuing from the employee’s position are substantially amended in the course of employment and if such amendments created an obstacle to finding a new suitable position elsewhere.

Saudi Arabia
Clyde & Co LLP

Non-compete and confidentiality obligations are specifically recognised under the Labour Law. The employment contract may include a non-disclosure provision valid for a maximum of two years from the date of termination. This provision is valid only if it is limited in regard to the time, place and nature of the business to the extent reasonably necessary to protect the employer’s lawful interests. The Labour Law does not preclude employers from imposing other post-termination restrictions (eg, non-solicitation and non-dealing provisions). Any such restrictions must be reasonable and appropriately limited in scope in order to be enforceable. 

Switzerland
Pestalozzi Attorneys at Law Ltd

The following restrictive covenants are recognised and generally enforceable under Swiss law:

  • confidentiality agreements;
  • non-compete agreements; and
  • non-solicitation agreements.

Certain limitations restrict the enforceability of these agreements. For example, excessive non-compete provisions may be reduced by the courts and, in most cases, will not be enforceable for more than three years after termination of employment. Similarly, liquidated damages that are agreed to in the case of violation of a non-compete obligation and are considered excessive may be reduced by the courts.

United Kingdom
Mayer Brown LLP

The general rule on restrictive covenants is that all contractual restraints on a former employee's freedom to work are void and unenforceable as they are considered a restraint of trade and contrary to public policy, unless the employer can show that the covenants protect a legitimate business interest and go no further than is reasonably necessary to protect that legitimate interest. In determining whether a particular covenant is reasonable, the courts will, among other things, look at the length and scope of the restriction.

The types of restrictive covenant that are commonly used by employers are:

  • confidentiality provisions (prohibiting the use of confidential information);
  • non-competition restrictions (prohibiting the former employee from working in a competing business);
  • non-solicitation covenants (prohibiting the former employee from soliciting customers or other business connections of the employer); and
  • non-dealing covenants (prohibiting the former employee from dealing with customers or other business connections of the employer).

USA
Ogletree Deakins

A restrictive covenant is bound by traditional contract requirements. Most states deem restrictive covenants to be legally binding as long as the clause contains reasonable limitations as to the geographical area and time period. The extent to which non-compete clauses are legally allowed varies per jurisdiction. Some jurisdictions, such as the state of California, invalidate non-compete clauses for all but equity stakeholders in businesses.

Are there any special rules on non-competes for particular classes of employee?

Angola
Miranda & Associados

If the employee consents, it is possible to establish a non-compete obligation for a period of up to three years following termination, provided that the following requirements are met:

A non-compete clause is included in a written employment contract or an addendum thereto.
The activity in question may cause real damage to the employer and is deemed unfair competition.
The employee is paid compensation during the restricted period, and the amount of compensation is stated in the contract or an addendum thereto. The compensation may be reduced equitably if the employer incurred costs in training the employee.

At present, non-compete obligations apply only to work within 100 kilometres of the location of the previous employment. This rule will cease to exist under the new General Labour Law (7/15).

Armenia
ELL Partnership LLC

No special rules exist for non-compete agreements.

Austria
Graf & Pitkowitz

After termination, the use of restrictive covenants must:

  • not exceed 12 months;
  • relate only to activities in the employer’s industry or trade; and
  • be reasonable and not place undue hardship on the employee’s job prospects in terms of time and geographical area, in light of the legitimate business interests of the employer.

Employees can consent to post-termination restrictive covenants only if they are of legal age and earning at least €2,635 per month. Junior office staff and part-time employees usually do not meet these criteria.

Belgium
Van Bael & Bellis

Employment contracts may contain a non-compete clause whereby, after leaving, the employee is prevented from carrying out similar activities – either on his or her own behalf or by entering into an employment contract with a competitor.

In order to be valid, a non-compete clause must comply with Article 65 of the Law on Employment Contracts, which stipulates that the clause must:

  • be in writing;
  • relate to similar activities;
  • remain applicable for not more than 12 months after the expiration or termination of the employment contract;
  • be geographically limited to the territory in which the employee can effectively compete with the employer; and
  • provide for payment by the employer to the employee of a sum equal to at least half the gross remuneration of the employee corresponding to the duration of the non-compete obligation, unless the employer waives the non-compete clause within 15 days of termination of employment. The reference period for the calculation of compensation is the last month preceding termination of employment.

A non-compete clause is null and void if the employee’s gross annual remuneration is less than €33,203 (as adjusted). If it is between €33,203 and €66,406, the non-compete clause may apply only to specific areas of work fixed by collective bargaining agreements concluded in a joint committee or the company itself. If the gross annual remuneration exceeds €66,406, the non-compete clause is valid unless otherwise stipulated by a collective bargaining agreement concluded in a joint committee or the company.

Where a non-compete obligation is violated, the employer can recoup from the employee an amount corresponding to twice the lump-sum compensation paid to the employee.

Non-compete clauses have no effect if the contract is terminated:

  • during the first six months of employment; or
  • after the first six months:
    • by the employer without serious breach on the part of the employee; or
    • by the employee for serious breach on the part of the employer.

Non-compete clauses encompassing a territory larger than Belgium and/or extending beyond 12 months are valid, provided the employer carries out its activities on an international scale or has its own research and development centre. Further, the employee must be entrusted with activities that enable him or her to acquire information about practices whose disclosure might be harmful to the employer. In such cases, a non-compete clause may remain applicable even if the employment contract is terminated during the first six months or by the employer without serious cause.

Specific non-compete clauses should be used for sales representatives.

Canada
Miller Thomson LLP

For most sales and customer-facing employees, non-compete clauses will generally not be enforced if a reasonable non-solicitation clause would have adequately protected the employer’s interests. 

France
Seyfarth Shaw LLP

Non-compete clauses can be valid, depending on the legitimate business of the company and provided that they are limited in time and geographical scope and that the employee receives financial compensation for the duration of the non-compete. The financial compensation is defined by the applicable collective bargaining agreement, employment agreement and case law and usually ranges from 30% to 60% of the employee’s monthly salary. 

Germany
Vangard

There are no specific rules on non-competes for particular classes of employee.

Different rules on post-contractual non-compete obligations apply to managing directors or board members (neither of whom are considered employees) from those applicable to employees, however.

Iceland
Logos Legal Services

Employment contracts may contain a non-compete clause whereby, after leaving, the employee cannot carry out similar activities on his or her own behalf or enter into an employment contract with a competitor.

To be valid, a non-compete clause must comply with the Act on Contracts, Agency and Void Legal Instruments (7/1936). Non-compete clauses will be considered invalid where the commitment goes beyond what is necessary to avoid competition or unreasonably restricts the employee’s right to employment.

To assess the latter, the employer’s interest in the commitment will be considered. Further, the commitment will not be binding if the employee is terminated or dismissed without good cause or lawfully leaves his or her position on the grounds that the employer failed to meet its obligations.

India
Kochhar & Co

Under Indian law, a non-compete agreement is not enforceable against an employee. This applies to all classes of employee without exception. 

Israel
Barnea & Co

There are no special rules on non-compete clauses for any particular class of employee.

Japan
Iwata Godo

Non-compete agreements can generally be used to prevent an employee from competing with his or her employer during and after employment. However, as post-termination restrictions can be deemed to infringe an individual's freedom to work, they will generally be enforceable only if:

  • they have been expressly agreed;
  • they are reasonable in terms of their duration and territorial scope; and
  • the employer has a legitimate interest in protecting its interests (eg, confidential information or trade connections).

No particular class of employees is targeted or exempted by law; however, in principle, it may be difficult to justify a non-compete agreement for a menial job or job with no exposure to trade secrets, proprietary knowledge or specific know-how. Under case law, no compensation is required to enforce a non-compete agreement, although this may change in the future.

Luxembourg
Loyens & Loeff

In accordance with Article L 125-8 of the Labour Code, in order to be valid, a non-compete clause must fulfil the following conditions:

  • The non-compete clause must be in writing.
  • The non-compete clause must apply only to employees who go on to run their own company after leaving their employer.
  • The employee signing the employment contract or any modification containing a non-compete clause must be at least 18 years old.
  • The employee must earn an annual salary of at least €52,843 (value based on Index 775.17) on the day that the employee leaves the company.
  • The non-compete clause must refer to a specific professional sector and professional activities that are similar to those performed for the former employer.
  • The non-compete clause must be limited to 12 months, beginning on the day that the employee’s employment contract ends.
  • The non-compete clause must be limited geographically to Luxembourg.

Mozambique
Miranda & Associados

No.

Netherlands
Shearwaters

No – the position described above applies to all persons who are employees.

Saudi Arabia
Clyde & Co LLP

An employer may include a non-compete clause in an employment contract or ask an employee to sign a non-compete agreement when he or she starts. According to Article 83 of the Labour Law, this provision is valid only if it is limited in regard to the time, place and nature of the business to the extent reasonably necessary to protect the employer’s lawful interests. The maximum duration of such provision is two years.

In practical terms, employers can ensure that non-Saudi national employees uphold non-compete obligations through the restriction imposed on foreign workers regarding the transfer of sponsorship to a new employer. All foreign workers must be sponsored in order to reside and work in Saudi Arabia. They cannot transfer their sponsorship to another employer if they have not completed at least two years’ continuous service with the existing employer and obtained a letter from their existing employer stating that it does not object to the employee taking an alternative job.

Switzerland
Pestalozzi Attorneys at Law Ltd

No special rules on non-competes apply for particular classes of employee.

A non-compete will be enforceable only to the extent that the employee:

  • had access to business secrets and customer relations, whose use may harm the employer; and
  • has terminated the employment relationship.

Non-compete undertakings must be agreed in writing and specify the term, territory and scope of application.

United Kingdom
Mayer Brown LLP

No special rules on non-compete restrictions for particular classes of employee exist. However, non-compete restrictions are traditionally the hardest restrictive covenants to enforce. Since employees are restricted by law from disclosing confidential information amounting to a trade secret after termination – as well as often being subject to express confidentiality provisions – any additional restrictions on their activities after termination may be viewed as unnecessary. As such, non-compete restrictions should be carefully considered for each employee and tailored, among other things, to their level of seniority and length of service. In addition to the length of the restriction, the geographical extent of the restriction should also be considered.

USA
Ogletree Deakins

Many states limit the enforceability of non-compete agreements in the medical and legal professions.

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