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Obligation to pay compensation extended to all non-competition agreements at the turn of the year

15.11.2021
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News article

The key change is that the employer now has to pay compensation to the employee for the period they are bound by the non-competition agreement.

On 10 November 2021 the Parliament approved the legislative amendments concerning non-competition. The aim of the new regulation is to restrict groundless non-competition agreements.

A non-competition agreement restricts the employee's right to enter into employment with a competing employer or the right to engage in competing activities on their own account after the termination of their employment. 

The key change is that the employer now has to pay compensation to the employee for the period they are bound by the non-competition agreement. The compensation is at least 40 percent of the salary for a non-competition period of up to six months, and 60 percent for longer periods. For example, for an agreed non-competition period of 6 months, the employer must pay the employee compensation that is equal to at least 40 percent of the salary for 6 months after the termination of the employment relationship.

The compensation is at least 40 percent of the salary for a non-competition period of up to six months, and 60 percent for longer periods.

The new regulation will be effective as of 1 January 2022. In 2022, the amendment will only apply to new agreements concluded on or after 1 January 2022. As of the beginning of 2023, the amendment will also apply to non-competition agreements concluded before the amendment. An employer will therefore also be obligated to pay compensation for a non-competition agreement concluded before the entry into force of the Act as of the beginning of 2023, unless the employer terminates the non-competition agreement before this time.

An employer has the right to terminate a non-competition agreement concluded before the entry into force of the Act without a period of notice during 2022. This allows employers to prepare for the legislative amendments and terminate all unnecessary non-competition agreements.

The obligation to pay compensation for non-competition agreements is likely to lead to a situation where non-competition agreements will be concluded only in employment relationships where they are genuinely necessary. The amendment will improve labour mobility and ensure the livelihood of employees during a non-competition period.

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