Non-competition Clause and the Duty of Employee Loyalty

Abstract

The paper answers the question whether the obligation to refrain from competitive activity arises as a result of a non-competition agreement in the course of the employment relationship, or whether it also, to some extent, stems from the special duty of loyalty being in force in the employment relationship. In addition, it evaluates the possibility of the employer terminating the employment relationship with an employee who, while not having a non-competition agreement during the employment relationship, undertook such activity.

The duty of loyalty is realized in two different relations. Firstly, it is realized in the workplace community and secondly, individually in the employee – employer relationship. The obligation to refrain from competitive activity by an employee who has not signed non-competition agreements cannot be inferred from the general duty of loyalty inherent in the relationship between the parties to the employment relationship. An agreement which will determine its extent is required in order to form such an obligation. Only if a non-competition agreement is concluded, the employer may rely on the employee’s obligation to refrain from competitive activity and draw the consequences in the form of dismissal under the procedure of Article 52 of the Labour Code. Each case, however, should be assessed individually because starting a competitive activity may also lead to the breaking of another employee obligation in a manner that can be classified as culpable and a serious violation of basic employee duties.