Non-compete clause (or competition clause) is an agreement between employer and employee concluded pursuant to Sec 310 of the Czech Labour Code (CLC). Such clause obliges employees to refrain, for a certain period of time not exceeding one year after termination of their employment, from being involved in gainful activities that would be similar or identical to the former employer´s business activity or competitive in nature. The employer on the other hand undertakes to provide adequate monetary consideration for each month this obligation is observed. This compensation shall be no less than one half of the employee´s former average monthly earnings for each month the said obligation is observed. The monetary consideration shall be payable on a monthly basis unless agreed otherwise. The clause must be agreed in writing.
Both the employer and the employee may withdraw from this competition clause, but only for reasons prescribed by law or those agreed by the parties. The employee may generally withdraw from the competition clause at any time, while the employer may withdraw from competition clause only during the existence of employment relationship, under Sec. 310 para. 4 of the Labour Code, i.e. not after it terminated.
In addition, employer’s withdrawal from the competition clause during employment for any reason or without is considered ineffective. A withdrawal in labour relations is a unilateral act which cancels prior legal act and the reason for withdrawal must be defined. The reason for withdrawal is its essential part; without indicating a reason, such unilateral withdrawal will not be considered perfect and may very well fail in bringing the contemplated legal effect if contested. This also applies, in our case, in cases where the competition clause contains a provision stating that the parties (specifically the employer) has the right to terminate without giving a reason. However, similar provisions in favour of employee would most probably be judged acceptable given the standard of protection awarded to employees.
Therefore, should an employer choose to withdraw from his obligation to pay his employee, for a certain defined period of time, an agreed cash settlement and should such withdrawal be made close to the end of employment, and even worse so, without giving any justifiable reason, such act would be considered void by courts as it violates, as per recent Constitutional Court ruling, the principle of legal certainty on the part of the employee (especially the extent of legal protection granted to employees under Sec. 1a para. 1 letter a) CLC); such act would be judged contrary to good morals and one that would in effect disadvantage employee’s position vis-à-vis the employer and potential employers. Thus, if an employer fails to specify the reason for withdrawal from competition clause, the clause is not considered to have been properly terminated and the obligations resulting therefrom survive.
The Constitutional Court confirmed in its ruling the previous interpretation of Sec. 310 para. 4 CLC by the Supreme Court, and the principle of priority accorded to the protection of employees against the autonomy of the will of contractual parties. Employers would therefore be advised, if they feel the need to abandon the earlier non-competition agreement, to withdraw from the clause no later than when serving (or receiving) termination notices or agreeing on termination with their employees voluntarily, and to simultaneously provide sufficient justification, which would stand up if subsequently contested in court.