The Post Contractual Non-Competition Clause And Compensation

10 November 2008

Recently, this pact has caused a lot of controversy in company-employee relations. It involves the extension of the employees’ obligations beyond the termination of their employment contract.

The non-competition obligation is not derived from the law but rather from free will. However, the law safeguards these pacts from becoming abusive by imposing a few basic requirements under current labor regulations:

  • True commercial or industrial interest by the business owner
  • A maximum duration of two years for the agreement (for employees with degrees and Senior Management), or six months (for ordinary, non-technical workers)
  • Adequate economic compensation for the employee

Any agreement that does not fulfill one of these requirements will be considered null and void and under no circumstances will be considered only partially null.

As regards that last requirement of an adequate economic compensation, the judge must use criteria such as age, degree, or the time or geographical restriction of the non-competition agreement. The Supreme Court’s ruling of March 4, 2008 establishes that the amounts to be taken into consideration when determining the economic compensation for post contractual non-competition must be liquid amounts and must include the prorated amount for extraordinary annual salary payments.

The post contractual non-competition clause which leaves the option of abandoning the agreement in hands of the company is also considered null and void.

There are various times when the non-competition agreement can be made: in the pre-contract, when the employment contract is signed, during the labor relation or once the relation is terminated.

In the event of a breach of the non-competition agreement, the injured party can require that the other party fulfill contractual obligations and, simultaneously, claim for injuries and damages.

For further information, please contact Ana Gómez Hernández: agomez@mmmm.es