We summarise below two recent cases which may have significance for international employers. One of the cases deals with the interpretation and enforcement of a non-compete clause contained in an employment contract and the other focuses on the payment of bonuses.
Interpretation of employer's conduct regarding payment of bonuses
The claimant was the chairman of a state-owned public limited company between 2003 and 2008. The deed of foundation of the company and company policies set out provisions for paying bonuses to employees (including the chairman), conditional on certain economic criteria being fulfilled by the company. The chairman received a bonus in 2004 and 2005, but no bonus was paid for the rest of his employment. The plaintiff brought a claim in relation to the non-payment of bonuses for 2006, 2007 and 2008, alleging that the general assembly of the company's shareholders had not set any targets for the chairman for these years and some of the criteria were independent of the claimant's personal performance. The claimant claimed that this qualified as an abuse of his rights. He also argued that although the company was already unprofitable when his employment contract was agreed, a clause for bonuses was nevertheless included in the contract.
The Supreme Court held that the claimant's arguments were baseless and pointed out that criteria for bonuses may include conditions not related to the claimant's personal performance (e.g. economic performance of the company). The Supreme Court stressed that the employment contract provided only for the possibility of bonus payments but did not create an obligation to make them and the practice of paying bonuses in the previous years did not entitle the chairman to bonus payments in subsequent years.
In order to avoid lengthy court proceedings and to comply with the findings of the Supreme Court we suggest that employers review bonus policies and employment agreements relevant to Hungarian companies.
Interpretation and enforcement of non-compete clauses
The claimant, the former employer of the defendant, was a manufacturer of chemical fertilisers, nitrogen compounds and a wholesale trader of chemical products. The defendant, an agronomist, entered into an employment contract with the claimant in 2009 which included a non-compete obligation restricting the defendant from entering into employment with any companies that carried out similar activities to that of the claimant, in consideration of compensation. Following the termination of the defendant's employment in 2013, the defendant started working for a company producing organic-based chemicals. The claimant brought a claim in relation to the consideration paid for the 24 month non-compete provision, on the grounds that that the new employer carried out the same commercial activity, i.e. wholesale trade of chemical products, as the claimant.
The court rejected the claimant's arguments and pointed out that the aim of the non-compete agreement between the parties was to prevent the defendant from using information and data gained at the previous employer in an unfair fashion and thus to harm or jeopardise the lawful interest of the claimant. Put simply, the fact that both companies were involved in the wholesale trade of chemical products was not sufficient grounds to establish a breach of the non-compete agreement. The claimant had to demonstrate the real or potential harm to the claimant's interests. The court also stated that non-compete clauses may not be interpreted in a way which prohibits the former employee using his skills and experience gained at the former employer, since that would prevent the employee from entering into any employment contract with any other company.
This court decision gives helpful practical guidance for drafting the wording of non-compete agreements and provisions.