23 April 2014
Most employment agreements contain a non-compete clause or a business relations clause.
Employees would of course prefer to not agree upon such a clause, but they want the job, don’t want to annoy their new employer and so they sign.
A big misunderstanding is the following: Many employees seem to believe that these clauses can be violated without any consequences. Let me help you out of that dream as soon as possible. When such a clause has been agreed upon in the right way – namely in writing and with an employee above the age of 18 – it is binding. In the case of a breach, the employee will incur an immediately payable contractual penalty. Having incurred this penalty, an employee can only ask a court of law to mitigate the incurred penalty. It cannot be shaken of entirely.
Of course an employee can take action if he wants the clause to no longer apply. Mostly an employee will inform his employer of his intention of leaving and will then try to negotiate. An employee can state that the clause will not stand up in a court of law because it is too far reaching or has lost its validity ( due to another job or heavier responsibilities). An employee can also claim that the new position which has been offered will lead to a substantial improvement. The employee’s interests should therefore prevail above those of the employer. Depending on the employee’s arguments, an employer will be prepared to either limit the clause or to annul it. Whatever happens, an employee must make sure the clause is no longer in place when he starts working for clients or competitors.
A next question which of course often arises is whether the non-compete or the business relations clause will indeed be violated if the employee decides to do what he is intending. In other words: what is the interpretation of the clause? Is the new employer a competitor or a client? In a recent case a judge was asked to interpret a business relations clause. He had to determine what was meant by “ relation”.
The cantonal court gave a very broad interpretation of the word “relation”. The court decided that not only existing relations but also contacts which might become relations fell within the scope of the clause.
The employee decided to appeal and the court of appeal judged that the interpretation given by the lower court was too restrictive. Not only should the court have looked at the linguistics of the clause, the whole context should have been taken into consideration. In the opinion of the court of appeal, a general answer to the question whether can be spoken of a relation of the employer is not possible. Each case has to be looked in to individually and depending on the specific circumstances one must determine who can be seen as a relation.
In general it is wise to make sure the non-compete and/or relations clause are as clear in wording as possible. Try to negotiate and make the clauses as restricted as possible. In the case of a non-compete, the term should not be longer than 1 year and the geographic span can be limited to the region in which is mostly worked. In the case of a relations clause, try to be as specific as possible and limit the term to no longer than a year.
When in doubt, call us. It is cheaper to get good legal advice before taking action than trying to solve problems afterwards.
You can also learn more about non-competition clauses when starting a new job or leaving your current employment in the new white paper: When to call a lawyer about work.
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