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.
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.
- Decision of Czech Supreme Court no. 21 Cdo 1276⁄2001 of 11 April 2002.
- Act no. 65⁄1965 Coll., the Labour Code, as amended.
- Decision of Czech Supreme Court no. 21 Cdo 5008⁄2009 of 5 January 2011.
- Act no. 262⁄2006 Coll., the Labour Code, as amended.
- Decision of Czech Supreme Court no. 21 Cdo 4986⁄2010 of 20 September 2011.
- Decision of Czech Supreme Court no. 21 Cdo 4394⁄2010 of 28 March 2012.
- 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.