A Catalonia High Court judgment has deemed that the post-contractual noncompete undertaking cannot exceed the duration of the employee’s contract.
The ban on employees competing with their employers during the term of their employment relationship is imposed by law. However, it is also possible to limit competition following the termination of the employment contract. To do so an express written undertaking must be formalized that meets certain requirements. Special attention should be paid to the content and wording of these post-contractual noncompete undertakings to prevent them from being declared null and void and therefore unenforceable.
Several elements must be taken into consideration to ensure these types of undertakings remain valid, many of which include clauses that must be analyzed in light of the circumstances of each specific case, as we are reminded by court rulings on the subject.
The employer therefore has to evidence an effective industrial or commercial interest in noncompetition by the employee, to whom adequate economic compensation must be paid, understood as compensation that is sufficient and proportionate to the enforced inactivity faced by a worker who leaves or loses their job, while they look for a new job that does not compete with the previous one. For such purposes, the courts take into account not only the total amount paid to the worker as consideration for the noncompete undertaking, but also other factors, such as the duration of the undertaking, the geographic area to which it applies, the indemnification payable by the worker in the event of breach of the undertaking, etc.
Case law has made it clear that the enforceability of this post-contractual obligation cannot depend on the will of the employer, since compliance with the obligations cannot be at the discretion of only one of the parties.
Equally, questions have been raised regarding the indemnification agreed in the event of breach of the undertaking by the worker (penalty clauses), with it being settled case law that the indemnification can be modulated by the courts if it is disproportionate. It should also be noted that the right to bring a claim for breach expires one year after the breach occurs and the employer has knowledge of it.
As regards the duration of the undertaking, this will depend on whether the worker is considered a technician, in which case it cannot exceed two years. For workers not classified as technicians, the limit is six months.
However, the recent judgment handed down by the Catalonia High Court on October 4, 2018 has brought to light a new element to be taken into account regarding duration of the undertaking. In the case analyzed, the court established that a contractual undertaking cannot be declared lawful where the duration of the noncompete obligation exceeds the duration of the contract. In this case, the noncompete undertaking was for two years while the provision of services lasted six months with a further six-month extension. The court therefore concluded that the worker’s obligation to indemnify its former employer for breach of the undertaking could only apply to a period of two months, since it considered that the worker had begun to compete ten months after the termination of his employment contract but that the duration of the noncompete undertaking should never have exceeded the 12-month contractual term and that, consequently, only two months of the noncompete period were breached.
This interpretation obliges employers to adapt the duration of the noncompete undertaking to the term of the related contract, and perhaps to consider that the duration of the noncompete undertaking will be automatically adapted to the duration of the employment relationship if, for whatever reason, the employment contract is terminated before the term envisaged for the undertaking