This issue was addressed by the Supreme Court of the Czech Republic in its judgement in case no. 21 Cdo 506/2013, dated 7 January 2015, where it states that:
“The basic requirement of a non-competition clause is the employee’s undertaking to refrain from gainful activity that is also the subject of the employer’s activity or which is of a competitive nature with respect to the employer for a certain period after the termination of employment, though no longer than a period of one year, and the employer’s undertaking to provide the employee with adequate financial recompense (compensation), equal to at least his/her average monthly earnings, for each month of compliance with this undertaking. Average monthly earnings are always understood to mean average gross earnings.
Other requirements of the valid agreement such as “territorial application” or “summary of prohibited activities” are not stipulated by law. It is certainly the dispositional right of the parties to mutually agree on these matters if they have an interest in doing so: however, if they do not exclude certain territories from the scope of the agreement or create a detailed list of “prohibited” activities, this does not make the agreement on a non-competition clause invalid.”
1. Facts of the case
In this case, the plaintiff demanded that the defendant pay him CZK 53,468, including late interest, on the grounds that he was the defendant’s employee under an employment contract, working as a shift supervisor. His employment was subsequently terminated by agreement. The employment contract included a non-competition clause according to Section 310 of Act No. 262/2006 Coll., the Labour Code (“LC”), in which the plaintiff undertook to refrain from gainful activity that was also the subject of the defendant’s activity for a period of 12 months from the termination of his employment, and the defendant undertook to pay the plaintiff financial compensation equal to his average monthly earnings for each calendar month of the undertaking, if these conditions were met. Neither the defendant nor the plaintiff withdrew from the non-competition clause during the course of employment. On the termination of his employment, the plaintiff called on the defendant to fulfil her obligations under the non-competition clause. However, the defendant stated that she would not provide payment as the plaintiff had not come into contact with information, work or technological procedures that corresponded to, for example, trade secrets by their nature, during the course of his employment.
2. The matter in dispute
During proceedings, however, the subject of the dispute became the validity of the non-competition clause, where the defendant claimed the non-competition clause was invalid, as it restricted the rights of the employee (plaintiff) to pursue gainful activity as it had been agreed for “an overly extensive range of activities”.
The defendant saw another reason for its invalidity in the absence of the geographical application of the non-competition clause.
She also argued the indeterminacy of the clause, as the agreement used the term “average earnings” and it was not clear whether this meant gross or net earnings.
The plaintiff claimed that the defendant could not claim the invalidity of the non-competition clause as she had created it herself as the author of the contract. The plaintiff considered the non-competition clause valid.
3. Legal assessment by the court
The defendant’s argument did not satisfy the Supreme Court of the Czech Republic and it stated that the law did not stipulate the requirements of a non-competition clause such as “territorial application” or “summary of prohibited activities” and therefore neither the absence of the geographical application of the non-competition clause or its scope could render the clause invalid.
In the matter of its indeterminacy, the court concluded that according to the interpretive rules of the Labour Code (§ 352 LC), average earnings were always understood to mean average gross earnings, unless labour regulations stipulated otherwise. It therefore did not find the arrangements indeterminate.
4. Conclusion
In light of the above, it can be concluded that a non-competition clause will be valid if it includes (i) the employee’s undertaking to refrain from gainful activity that is also the subject of the employer’s activity or which is of a competitive nature with respect to the employer for a certain period (though no longer than a period of one year) after the termination of employment, and (ii) the employer’s undertaking to provide the employee with adequate financial compensation equal to at least his/her average monthly earnings, for each month of compliance with this undertaking.
Other requirements need not be agreed and the concept of average monthly earnings need not be further specified.
For more information, please contact our office’s partner, Mgr. Jiří Kučera, e-mail: jkucera@kuceralegal.cz ; tel.: +420604242241.