The Italian Civil Code regulates the non-competition obligations of employees towards their employer both during the employment relationship and after its termination.
During the course of the employment relationship, each employee is bound by a duty of loyalty toward the employer. Specifically, the employee cannot carry out any activity (including on behalf of third parties) in competition with those of the employer, or disclose to third parties any information related to the employer's organization, production methods or know-how which may substantially damage its activity.
The employee's breach of this obligation constitutes subjective, justified reasons (giustificato motivo soggettivo) or just cause (giusta causa), depending on the seriousness of the alleged infringement, for dismissal.
However, the loyalty obligation is only effective during the course of the employment relationship. In order to extend its effect after the end of employment, the parties must sign a non-competition agreement which prolongs the former employee’s duty of loyalty.
Under the Italian Civil Code the parties can agree that, after the termination of the employment relationship, the employee undertakes not to perform, either alone or as an employee of third parties, any activity in competition with those of the former employer; and not to be involved, directly or indirectly in any form, or carry out activities for a competitor company. This non-compete obligation may be included in an employment contract as a specific clause or established by a written agreement between the employer and the employee.
Under Italian law, the non-compete obligation is lawful provided the following mandatory conditions are met:
- there is a specific written agreement expressly and separately agreed/signed by the employee;
- it does not completely prevent the employee from working by using their professional skills and experience;
- it is limited to a specific object/activities and the territory;
- the duration of the non-compete agreement cannot exceed the period of three years for all employees and five years for executives;
- it is expressly and adequately compensated.
The absence of at least one of these requirements makes the non-compete obligation void and unenforceable. Italian law does not provide any principles on the amount of the specific compensation due to the employee.
However, under Italian case law, the compensation can range from 15% to 100% of the salary at the date of termination, depending on the actual limitation on the employee in working; the consequent losses that may result for the employee; the territorial extension of the limit; the job position and the salary of the employee; and the duration of the clause.