Under Italian Law, restrictive covenants preventing an employee from joining a competitor must be:
executed in writing
limited in scope
limited in time (up to five years for executives and up to three years for all other employees)
limited in territorial scope; and
Except on the time issue, Italian Law does not give any guideline as to the extent of the limitations or the adequacy of the compensation. Guidance comes from case law which treats as null and void non-compete agreements which:
constitute an excessive restriction of the employee's chances of finding a new job, due to the scope of the activities forbidden and/or to the geographical extent of the restriction; and/or
do not provide sufficient remuneration in exchange for the restriction imposed on the employee.
The main principle is that there must be a balance between the restriction and the compensation. The more the non-compete covenant reduces the chances of the employee finding a job, the higher the compensation must be. For example, non-compete covenants applicable worldwide have, in exceptional circumstances, been accepted as lawful. However, in such cases, case law requires the compensation to be almost equivalent to the employee's annual salary.
The adequacy of the compensation is assessed on a case-by-case basis, taking into account the specific features of the non-compete clause. However, compensation in the range of 15% to 20% of annual salary is considered fair if the non-compete commitment is not particularly restrictive.
Again under case law, the compensation must be paid at the end of the employment relationship, not during it. This is because a payment made during the employment relationship cannot be considered adequate compensation given that the total amount of the compensation will be depend on the duration of the employment relationship (the longer the employment relationship, the higher the compensation).
Some non-compete covenants allow the employer to withdraw from the covenant at the end of the employment relationship. A recent judgment of the Italian Supreme Court declared these clauses unlawful because they create an imbalance between the employee, who remains subject to the covenant at the employer's will, and the employer, who retains the power to make the covenant null and void.