Non-Competition Clauses in Czech Employment Law – The Never Ending Story

→ Veronika Odrobinová

Non-competition clauses obliging the employee not to compete against the employer for a period of time after the employment ends have a complex and colourful history in the Czech law. It seems that as soon as the legislator updates the regulation to remedy existing problems, new problems come up.

Until 1 Jan­u­ary 2001, the non-com­pe­ti­tion clause was not reg­u­lat­ed at all. The Czech Supreme Court nev­er­the­less recog­nised its valid­i­ty under the Civ­il or Com­mer­cial Codey¹, as long as the rela­tion­ship was bal­anced.

From 1 Jan­u­ary 2001, the non-com­pe­ti­tion clause was imple­ment­ed in the Czech Labour Code². It did not stip­u­late any­thing about com­pen­sa­tion, only that a non-com­pe­ti­tion clause can be agreed under terms that can be just­ly required from the employ­ee. The Czech Supreme Court has sub­se­quent­ly con­clud­ed³ that this means in par­tic­u­lar com­pen­sa­tion. The amount of the com­pen­sa­tion, how­ev­er, remained unclear.

A change in the regulation

From 1 March 2004, the reg­u­la­tion has changed. Com­pen­sa­tion was required to be at least the month­ly aver­age earn­ings at the time of ter­mi­na­tion of employ­ment for each month of the non-com­pe­ti­tion com­mit­ment. The new reg­u­la­tion also stip­u­lat­ed that the employ­er can with­draw from the non-com­pe­ti­tion clause only until the date of ter­mi­na­tion of employ­ment.

This reg­u­la­tion of the non-com­pe­ti­tion clause was imple­ment­ed into the new Labour Code⁴, effec­tive from 1 Jan­u­ary 2007, with­out major changes.

A new round of discussions

The sen­tence about the with­draw­al by the employ­er start­ed anoth­er round of legal dis­cus­sions on the non-com­pe­ti­tion clause.

Ini­tial­ly, it was dis­cussed whether this pro­vi­sion could be inter­pret­ed as estab­lish­ing the right of the employ­er to with­draw from the non-com­pe­ti­tion clause. The Czech Supreme Court con­clud­ed⁵ that this clause aims only at the deter­mi­na­tion of the peri­od after the expiry of which the employ­er can­not with­draw from the non-com­pe­ti­tion clause (ter­mi­na­tion of employ­ment). But the pos­si­bil­i­ty to with­draw must be explic­it­ly agreed in the employ­ment or oth­er agree­ment between the employ­er and the employ­ee.

From 1 Jan­u­ary 2012, changes to the Czech Labour Code have slight­ly improved the con­di­tions for the use of the non-com­pe­ti­tion clause. For exam­ple, a non-com­pe­ti­tion clause can be agreed even in the pro­ba­tion peri­od. The min­i­mal amount of the com­pen­sa­tion was decreased to one-half the aver­age month­ly earn­ings at the time of the ter­mi­na­tion of employ­ment for each month of the non-com­pe­ti­tion com­mit­ment.

Another Supreme Court decision

How­ev­er, in March 2012, the Czech Supreme Court issued anoth­er deci­sion⁶ that has shak­en the use of the non-com­pe­ti­tion clause yet again. The court repeat­ed that with­draw­al by the employ­er is pos­si­ble only if it was explic­it­ly agreed, but it added that spe­cif­ic rea­sons for the with­draw­al must be con­tained in such an agree­ment on the pos­si­bil­i­ty of with­draw­al. In addi­tion, such rea­sons may not abuse the with­draw­al right to the detri­ment of the employ­ee.

Such a lim­i­ta­tion is not explic­it­ly con­tained in the Labour Code or the Civ­il Code – to which the Labour Code gen­er­al­ly refers – if there is no spe­cif­ic reg­u­la­tion in the Labour Code. It is usu­al in civ­il law rela­tion­ship that the par­ties agree on with­draw­al with­out giv­ing a rea­son – and this has been upheld by the Czech Supreme Court⁷.

Difficulties for employers

It is very dif­fi­cult to stip­u­late the rea­sons for with­draw­al, so it is dif­fi­cult for the employ­er to use the with­draw­al at all.

The rea­sons can be, for exam­ple, linked to how the employ­ment was ter­mi­nat­ed. A clear exam­ple is can­cel­la­tion dur­ing the pro­ba­tion peri­od, where the employ­ee may not have obtained any valu­able know-how.
Or, the rea­son for with­draw­al can be set; for exam­ple, the employ­ee has not obtained infor­ma­tion or know-how of val­ue to the employ­er. But in such a case, the employ­er would have to prove the exis­tence of the with­draw­al rea­son – often tricky. This rea­son for with­draw­al can again be con­sid­ered detri­men­tal to the employ­ee.

Conclusion

Although the employer’s with­draw­al pos­si­bil­i­ty is men­tioned in the Czech Labour Code, the Czech Supreme Court has essen­tial­ly can­celled the pos­si­bil­i­ty to use it. Giv­en the high price of a non-com­pe­ti­tion clause, it is like­ly that it will remain a the­o­ret­i­cal instru­ment in the Czech Repub­lic, as it is now.

Changes to the Czech Labour Code have improved the conditions for the use of the non-competition clause, but a recent Czech Supreme Court decision has compromised the possibility of the withdrawal by the employee if no specific reasons are agreed.

1

Deci­sion of Czech Supreme Court no. 21 Cdo ¹²⁷⁶⁄₂₀₀₁ of 11 April 2002.

2

Act no. ⁶⁵⁄₁₉₆₅ Coll., the Labour Code, as amend­ed.

3

Deci­sion of Czech Supreme Court no. 21 Cdo ⁵⁰⁰⁸⁄₂₀₀₉ of 5 Jan­u­ary 2011.

4

Act no. ²⁶²⁄₂₀₀₆ Coll., the Labour Code, as amend­ed.

5

Deci­sion of Czech Supreme Court no. 21 Cdo ⁴⁹⁸⁶⁄₂₀₁₀ of 20 Sep­tem­ber 2011.

6

Deci­sion of Czech Supreme Court no. 21 Cdo ⁴³⁹⁴⁄₂₀₁₀ of 28 March 2012.

7

For exam­ple, deci­sions of the Czech Supreme Court no. 25 Cdo ⁹¹³⁄₂₀₀₀ of 25 Jan­u­ary 2001, no. 25 Cdo ⁹¹³⁄₂₀₀₀ of 14 Sep­tem­ber 2000 or 25 Cdo ²⁷⁴⁄₂₀₀₀ of 22 Novem­ber 2001.