Comparison of the main features of non-compete agreements in CEE

Concluding non-compete agreements or including non-compete clauses in employment agreements is common practice in all jurisdictions in CEE. However, as these covenants are not subject to EU-wide regulations, the rules governing and the jurisprudence surrounding them differ in the various jurisdictions.

This article written by labour law experts in various jurisdictions aims to provide a snapshot of the most important rules governing noncompete agreements in CEE, including the maximum term of the non-compete period, the amount of compensation and the typical sanctions in the event the employee violates the non-compete clause. Below is a country-specific overview of these selected aspects of non-compete clauses.

Austria:

• Maximum term: One year as of the termination of employment.
• Compensation: In principle, no statutory compensation needs to be paid to enforce the non-compete. However, the non-compete obligation generally does not apply if the employment is terminated by the employer. If the employer terminates, it may validate the non-compete obligation by declaring (before the termination or when serving the termination notice) that for the period agreed the employer continues to pay the employee the remuneration he/she was entitled to before the termination (i.e. salary, pro rata special payments, overtime pay, etc.). In other cases (e.g. termination by the employee), there is no (statutory) compensation.
• Sanctions: Sanctions for violating the non-compete clauses depend on the parties' agreement. Parties often agree on a contractual penalty, which may not be higher than six monthly net remunerations. If agreed, the payment of the penalty is the only sanction and damages exceeding it cannot be claimed. If no contractual penalty is agreed, the employer may claim damages.

Bulgaria:

• Maximum term: Post-termination non-compete agreements are not expressly regulated under Bulgarian law. The court practice on their validity is also not consistent. According to some court resolutions, such clauses are null and void, since they restrict the employees' constitutional right to work. In practice, these clauses are usually agreed for a period of up to two years, more often for one year.
• Compensation: No statutory compensation is set out by law. However, if the employer pays compensation, the risk of a court declaring the clauses null and void is lower. Compensation generally depends on the circumstances, but the market standard is around 50 % of the employee's monthly/annual gross salary.
• Sanctions: Sanctions depend on the parties' agreement, but usually the employee may be required to repay the compensation received based on the non-compete agreement or pay a contractual penalty/liquidated damages. The employer also may claim damages exceeding the amount of the contractual penalty/liquidated damages, but these are usually difficult to prove. All the above, however, would depend on the general validity of the non-compete clauses.

Croatia:

• Maximum term: Two years as of the termination of employment.
• Compensation: Statutory compensation for the non-compete period is 50 % of the average salary paid to the employee in the three-month period prior to the termination of the employment agreement.
• Sanctions: Sanctions depend on the parties' agreement, but usually the employee may be required to repay the compensation received based on the non-compete agreement or pay a contractual penalty/liquidated damages.

Czech Republic:

• Maximum term: One year as of the termination of employment.
• Compensation: The minimum statutory compensation is 50 % of the employee's monthly average earnings for each calendar month of the duration of the restriction (average earnings to be calculated from the last calendar quarter and includes bonus, i.e. it is not only the monthly gross wage).
• Sanctions: Sanctions depend on the parties' agreement, but usually the employee may be required to pay a contractual penalty. If so agreed, the employer also may claim damages incurred, but these are usually difficult to prove.

Hungary:

• Maximum term: Two years as of the termination of employment.
• Compensation: The minimum compensation to be paid is 33 % of the employee's base wage for the term of the non-compete period. The compensation to be paid depends on the circumstances, but the general market practice is 50 % of the base wage for the term of the non-compete period.
• Sanctions: Sanctions depend on the parties' agreement, but usually the employee may be required to repay the compensation received based on the non-compete agreement or pay a contractual penalty/liquidated damages. The employer may also claim its damages exceeding the amount of the contractual penalty/liquidated damages, but these are usually difficult to prove.

Poland:

• Maximum term: The period of a post-termination non-compete agreement is not regulated by law. One to two years are typical durations. The period for which a post-termination non-compete is binding should be justified, because it cannot prevent the employee from working in a given market for unjustified reasons. As a result, the proper duration of a non-compete covenant should be assessed on a case-bycase basis, considering the person's position in the company, knowledge of its operations, time spent in the company and time for which knowledge acquired in the company gives a competitive edge.
• Compensation: The compensation for post-termination non-compete should amount to at least 25 % of the due remuneration which the employee should have received under the employment agreement for a term equal to the non-compete period. In the case of senior executives, the market standard is around 100 %.
• Sanctions: Sanctions depend on the parties' agreement, but usually the employee may be required to repay the compensation received based on the non-compete agreement or pay a contractual penalty. The employer also may claim its damages exceeding the amount of the contractual penalty, if such a clause is included in the agreement.

Romania:

• Maximum term: Two years as of the termination of employment.
• Compensation: Statutory compensation is at least 50 % of the gross average base salary income obtained by the employee during the last six months before the termination of employment. The non-compete compensation must be paid after the termination of the employment, during the non-compete period. Apart from the period and the compensation amount, the non-compete agreement must include the competing activities, the territory where the restrictions apply and the third parties that would benefit from the competing activities performed by the employee.
• Sanctions: If the employee breaches the non-compete agreement, he/she may be required to repay the compensation received based on the non-compete agreement and to cover the damages incurred by the employer. A penal clause anticipating damages to be potentially incurred by the employer is not permitted in employment agreements, so to recover damages, the employer must initiate a court action against the employee and must prove the extent of the damages incurred.

Slovakia:

• Maximum term: One year as of the termination of employment.
• Compensation: The minimum statutory compensation is 50 % of the employee's monthly average earnings for each calendar month of the duration of the restriction (average earnings are to be calculated from the last calendar quarter and include bonuses, i.e. it is not only the monthly gross wage).
• Sanctions: The Parties may (but do not have to) agree on reasonable monetary compensation that the employee is obliged to pay in case of a violation of the non-compete obligation. The amount of monetary compensation must not exceed the total amount of monetary compensation agreed with the employer for the non-compete period and shall be reduced proportionately if the employee complies with the obligation only in part. The employee's obligation to not compete is terminated upon payment of such monetary compensation.

Slovenia:

• Maximum term: Two years as of the termination of employment. Concluding a post-termination non-compete agreement is only admissible in cases of (i) mutual termination, (ii) ordinary termination by the employee, (iii) ordinary termination by the employer due to culpability reasons on the side of the employee, or (iv) extraordinary termination by the employer (save where the employee refuses the transfer to another employer during a transfer of undertaking).
• Compensation: The minimum statutory compensation is 33 % of the employee's average monthly salary in the past three months prior to the termination of employment for the entire non-compete period. Market practices vary depending on the type of work and other circumstances; the amount is generally higher in case of leading employees (e.g. 70 % of the average salary). It is mandatory to state the amount of compensation in the employment agreement, otherwise the non-compete clause is null and void. Also, the employee is entitled to such compensation only if the non-compete agreement prevents him/her from gaining earnings that are comparable to his/her previous salary.
• Sanctions: Sanctions depend on the parties' agreement and may include: repayment of the compensation received based on the non-compete agreement; payment of damages and/or payment of a contractual penalty. Until recently, it was not clear whether the contractual penalty for non-compete breach may be agreed in the employment agreement and the case law in this regard was inconsistent. A recent Supreme Court decision confirmed that a contractual penalty for non-compete breaches can be agreed in the employment agreement and is not non-enforceable per se.

Turkey:

• Maximum term: Two years as of the termination of employment.
• Compensation: No statutory compensation amount is determined under Turkish Law. There is no market standard; the amount to be compensated by the employee is determined by the court, based on the position and financial power of the employee, and the actual damage incurred by the employer.
• Sanctions: Normally damages claims can be enforced, for which there is no upper limit. The employee is obliged to compensate all damages and losses of the employer. In addition, if the amount of the contractual penalty is explicitly regulated under the agreement, the employee will also be liable for the payment of that amount.

As this comparison shows, non-compete clauses are admissible in almost all CEE jurisdictions, but the regulations governing them (if any) and the practical implications differ significantly. For employers operating in the region, it is important to note that standardised solutions are not likely to work in all these jurisdictions. Our regional coverage and expertise allow us to help clients implement legally compliant solutions throughout the CEE region.

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This article was up to date as at the date of going to publishing on 10 December 2018.