Employment non-compete clauses: Czech court confirms change in interpretation

The Czech Supreme Court held that an employer may unilaterally withdraw from a non-compete clause only upon providing legitimate reasons for withdrawal as are contained in the clause. The decision confirms a recent ruling from 2011 which has been subject to harsh criticism.

Under the Czech Labour Code, parties to an employment agreement may agree upon the inclusion of a non-compete clause which restricts the employee from competing with the former employer for up to one year following termination of employment. Such an undertaking is only binding if the employee receives monetary compensation amounting to at least one half of their average earnings during employment. The law also stipulates that an employer may only withdraw from the non-compete clause during the term of employment.

The latter provision has been interpreted as a general authorisation for an employer to withdraw from the non-compete clause at anytime prior to termination of employment, without having needed to state any reasons for withdrawal. When a key employee is hired, it is hard to determine whether any restriction regarding his/her professional activity and imposed following termination of employment is worth paying the employee compensation or not. The arrangement thus seemed to protect the legitimate interests of both employers and employees.

The current view of the Supreme Court is, however, seemingly different. An employer may withdraw from a non-compete clause only if this was explicitly agreed upon. Such a provision is only enforceable if it contains reasons for withdrawal, provided, in addition, that such reasons are legitimate.

As a result of this latest development, the number of non-compete clauses, and thus the level of protection afforded to employers following termination of employment, will most probably fall. Companies should review existing documentation, and amend it to decrease the risk of the non-compete clauses being held unenforceable upon challenge by former employees.