7 Protecting Business Interests Following Termination

7.1 What types of restrictive covenants are recognized?

The law permits the agreement on the prohibition of competition after the termination of the employment contract if, while carrying out work or in relation to work, the employee gains technical, production or business knowledge and business links. The competition clause can be agreed for a period not exceeding two years following the termination of an employment contract and only for cases when the employment contract was terminated at the employee’s will or through his fault. The agreement on the competition clause must be in writing and must be included in the employment contract.

Employers and employees can agree on many other restrictive covenants that shall apply in case of termination (usually in case of termination by the employee), whereas it must be observed that the employee’s constitutional right to freedom of employment shall remain intact (very common agreements are those regarding business secrecy, regarding the return of any training costs, etc.).

7.2  When are restrictive covenants enforceable and for what period?

Restrictive covenants are enforceable for an agreed period of time. The ERA only sets forth limitations regarding competition clauses that are enforceable in cases and during a period set forth in question 7.1.

7.3 Do employees have to be provided with financial compensation in return for covenants?

Monetary compensation for respecting a competition clause must be laid down in the employment contract, otherwise the competition clause is deemed to be invalid. Compensation per month shall amount to at least a third of the average employee’s wage during the past three months prior to the termination of the employment contract.

7.4 How are restrictive covenants enforced?

Restrictive covenants are enforced in front of the competent labour courts. Shall a former employee be in breach of a restrictive covenant, the employer may ask for an injunctive relief and a preliminary injunction to prevent any further breaches. Should the employee’s conduct cause any damages to the employer, the employer may claim for damages.


SOURCE: Employment & Labour Law 2012, ICLG

Authors: Miha Mušič, Vladka Plohl