Non-compete clause for employees

Letting go of an employee with valuable information or skillset? Want to prevent your competitor from grabbing such employee immediately?

A non-compete can be the solution to that! However there are certain pitfalls while drafting such clause which I will write about in today’s post.

A non-competition clause is a contractual arrangement between the employee and the employer that restricts the employee from working in a specific field or place for a certain period of time of up to one year. A well-set competition clause can save employers a lot of work and money and prevents their competitors from gaining valuable employees.

As far as here there shouldn’t be any problems. However a lot of employers are forgetting, that the non-compete is a two-way street.

On one hand the employee is not allowed to work for another company according to the non-compete, but on the other hand the previous employer has to provide the employee with reasonable monetary compensation for such period. Such compensation has to amount to at least his previous average monthly earnings. For every month which the Employee will not be able to work in the same field or place, the former employer has to provide compensation.

What happens if the employer complies with all the provisions of the non-compete (including compensation) and the employee breaches the clause?

The non-competition clause also stipulates a contractual penalty for breach of an employee's obligation, i.e. a performing activities in the same field as the previous employer.

Employers often impose a high contractual penalty to discourage employees from breaching the non-compete and thus securing their know-how.

Setting up the contractual penalty is very tricky endeavour and employers need to pay a great deal of attention when drafting such provisions.  A contractual penalty should be reasonable both in terms of what it actually protects and the length of protection. A high contractual penalty without reasonable justification cannot be enforced.

Do you need help with setting up the non-compete for your key employees and protecting your valuable know-how? We can definitely lend you a hand and help you with that matter.