22nd July 2021

Employee non-compete clause

The employee non-compete clause must

  • prohibit the employee from carrying out gainful activity which would be identical to the employer’s business activity or would be of a competitive nature;
  • include compensation of at least one-half of the employee’s average monthly earnings for each month when the obligation is fulfilled by the employee (any bonuses including annual bonuses will, in most cases, need to be proportionally included in the calculation);
  • be agreed for no longer than one year after termination of the employment relationship;
  • be agreed only with employees for whom compliance with the clause is justified in terms of the nature of information, knowledge, operational and technological know-how that they acquired during the employment relationship with the employer and the use of which in a prohibited activity could substantially hinder the employer’s activity;
  • be proportionate and specific.

Another crucial element of the employee non-compete clause is limits on the ability of the employer to withdraw from the clause. Doing so is only possible during the existence of the employment relationship and based only on agreed reasons that, however, cannot depend on the employer’s deliberation.

It should be also noted that once agreed, the employee non-compete clause applies regardless of the grounds for terminating the relationship with the employee and who terminated the relationship.

Taking all the legal specifics of the employee non-compete clause into account, employers should carefully consider with whom to enter into such an agreement and how to structure it.

More information here.

Members of the American Chamber of Commerce in the Czech Republic