When the new Code of Obligations (Law 6098) is enacted on July 1 2012, the previous Code of Obligations (Law 818) will be abolished. The new code explicitly regulates areas that were deemed ambiguous under the former law.

Under the new code, parties to an employment contract may draw up a non-competition agreement and decide that the employee may not:

  • perform work in competition with his or her employer on his or her own behalf;
  • work for a rival company; or
  • be a shareholder in a rival company; or
  • be engaged with a rival company under any position other than shareholder.

For a non-competition agreement to be valid, the following criteria must be met:

  • The employee must have legal capacity to execute the agreement. If the employee is not of legal age, the agreement will be invalid.
  • The agreement must be executed in writing; even if there is no written employment contract, the non-competition agreement must be drawn up in writing by the parties. Since it is the employee who will incur the obligation not to compete, his or her signature alone will be sufficient for the agreement to be considered valid.
  • The employee must be employed in a position where he or she has the opportunity to acquire valuable knowledge or trade secrets (eg, the customer portfolio or production secrets), and could use such information to cause the employer material damage.

In the event that an employee acts in breach of the non-competition agreement during his or her employment, such acts will constitute a violation of the employment contract. However, if such acts are carried out following the termination of the employment contract, they will constitute a violation of the non-competition obligation.

There should be a causal link between the employee's knowledge and the damage caused. If the damage is caused due to the employee's personal talent and ability, rather than as a result of the employee knowing trade secrets, the non-competition agreement is non-binding. For instance, in freelance work (eg, that undertaken by lawyers or doctors), relations with customers are based on personal talent, thereby making non-competition clauses invalid for such employees. The notion of 'trade information', as regulated under the new code, will be interpreted broadly to cover any kind of information that it is beneficial for the employer to keep from others. Such information includes:

  • customer portfolios;
  • the composition of a product;
  • confidential agreements;
  • a private organisation chart of the workplace;
  • the code system;
  • communication files; and
  • the cost price of a product.

Non-competition agreements should not obstruct an employee's economic development in conflict with justice and equity, or endanger his or her future career. If the non-competition restriction is not limited in terms of area, time and subject matter, it shall be deemed non-binding. Therefore, such an agreement shall be binding only as long as the employee's non-competition obligation is limited in scope. Such restriction must also be reasonable and proportionate to the specific case and conditions, evaluated by considering the employer's interest and the employee's future career.

Under the provisions of the new code, a non-competition agreement that imposes a very heavy liability on the employee will be evaluated freely by the judge and revised in line with equity and justice in the employee's favour. Accordingly, the judge may decide to:

  • limit the obligation of the employee; or
  • completely remove the obligation, where the judge rules that it is impossible for the employee to know the employer's customers or trade secrets.

For instance, a non-competition agreement that forbade an employee from working in a bank was deemed invalid by the Court of Appeals, since the regulation was not restricted in terms of area and subject matter of work, and also endangered the employee's future career.

In contrast to Law 818, the new code provides that the duration of non-competition obligations cannot exceed two years from the date on which the employee leaves the company, unless there are special cases or conditions. Under Law 818, the duration of a non-competition obligation was defined as an "appropriate period of time as the case may be" and judges were not authorised to restrict this period. However, the new code authorises a judge to limit the scope and term of non-competition obligations.

The employer may claim compensation from his or her employee if he or she acts contrary to the non-competition obligation, but only if the employer can prove that it is not at fault. The employer's right to claim compensation arises from the law - if an alleged infringement is proven, the employee will be obliged to compensate the employer for all damages. If a penalty clause is regulated under the non-competition agreement and there is no other regulation contrary to such penalty clause, the employee must pay that penalty to the employer for the damages that have arisen. The liability of penalty payment arises not from the law, but from the contract executed by the parties. However, in some cases the employee may be further liable to compensate damages exceeding the penalty amount decided under the non-competition agreement.

Under the new code, in addition to claiming any penalty and damages, an employer may request its employee to cease acting in breach of his or her non-competition obligation. However, in order for the employer to make such claims, this right must be explicitly reserved under the non-competition agreement in writing and the importance of the interests which have been violated or threatened and the acts of the employee must justify such request.

For further information on this topic please contact Melek Onaran Yüksel or Ahu Pamukkale Günbay at YükselKarkınKüçük by telephone (+90 212 318 05 05), fax (+90 212 318 05 06) or email ([email protected] or [email protected]).