Withdrawal from non-competition clause by the employer in Czech Republic
Withdrawal from non-competition clause by the employer in Czech Republic
Czech law regulates non-competition clauses in employment contracts; these are dealt with in the provisions of § 310 of Act No. 262/2006 Coll. (the “Labour Code”), in particular paragraphs 4 to 6 of the provision. The text of the Labor Code is as follows:
„(4) “The employer may withdraw from a non-competition clause only during the term of the employee’s employment relationship.”
(5) The employee may withdraw from a non-competition clause if the employer has not paid, within 15 days of its maturity, the monetary compensation or its portion; the competitive clause will expire on the first day of the calendar month following receipt of the notice.
(6) The non-competition clause must be concluded in writing; this applies mutatis mutandis to withdrawal from the competition clause and to its renunciation."
The general principles of contractual relationships and the regulation of the obligation of law in the Czech Civil Code, as well as the principles of Czech labor law, especially the understanding of the employee as the weaker party in the relevant employment relationship, which is to enjoy increased legal protection apply to the interpretation of the Czech Labor Code likewise. While the text of the Labor Code imposes an obligation on the employer to withdraw from the negotiated non-competition clause only in the sense that the withdrawal must be in writing and must be carried out during the duration of the employment relationship, the decision-making practice of the Supreme Court of the Czech Republic, described below, in the decisions No. 21 Cdo 4986/2010 a No. 21 Cdo 4394/2010 goes beyond this linguistic interpretation and implicates the valid withdrawal from the employer by the fulfillment of other requirements.
The merits of the cases resolved by the aforesaid decisions are quite specific and therefore a question arises as to how the provision of Section 310 of the Czech Labour Code should be interpreted and whether any of the conclusions set out in the aforesaid decisions are of a general nature which can be applied to any other case of withdrawal from the non-competition clause, even in the case where the employment contract clearly provides that the employer may withdraw from the competition clause for any reason or without giving any reason.
Decision-making practice of the Czech Supreme Court
The Supreme Court of the Czech Republic dealt with the issue of the interpretation of article 310 of the Labour Code and withdrawal from the non-competition clause in two cases.
Judgment of the Supreme Court of the Czech Republic issued under Ref. No. 21 Cdo 4394/2010 from 28th March 2012 based on the following merits:
- on 31 May 2004, an oral agreement on termination of employment was concluded; the employment was to be terminated on 30 June 2004,
- on 30 June 2004, the "document" on "termination of employment" was signed with termination date of 30 June 2004, but the employer added that the employment terminates on 2.7.2004,
- on 2 July 2004, the employer unilaterally announced that it "abolished the prohibition resulting from the non-competition clause".
The Supreme Court of the Czech Republic therefore proceeded on the basis of the fact that the employer notified the employee of her withdrawal from the competition clause after more than one month from the moment when the parties to the employment relationship agreed orally to terminate the employment relationship and de facto even after it ended.
According to a written agreement between the employer and the employee, the employer was additionally "entitled to shorten the duration of the prohibition unilaterally or to abolish it provided she notified the employee of this fact at the latest on the day of the employment relationship would end." Written withdrawal from the non-competition clause had to be in that case delivered no later than 30 June 2004 or 31 May 2004 respectively, if this contractual provision would be interpreted broadly so that the communication should go along with the conclusion of the oral agreement on 31 May 2004, when the termination of the relationship was agreed.
In the case in question, the abolishment of the non-competition clause was dated clearly to the detriment of the employee in the sense that, in the meantime between the oral agreement on termination of employment and the withdrawal from the competition clause, the employee was limited by the employer in finding a new job, particularly by the legitimate expectation that she can not apply for a job as defined in the non-competition clause and that she will be compensated for this restriction in an agreed manner by the employer. For this reason, the Supreme Court of the Czech Republic also stated in its decision the following:
"An employee whose employment relationship with a former employer is terminated usually selects his or her occupation, business or other gainful activity before the termination; if the employee agreed upon the non-competition clause with the employer, the employee must also consider that he/she is restricted by the non-competition clause in the choice of his/her other gainful activity, and that his/her obligation is "compensated" by the employer by providing him/her with the corresponding "economic benefit" ... ".
In our opinion, if in the above-mentioned case, the employee had learned about the withdrawal from the non-competition clause by the employer during the duration of the employment relationship and thus she would not feel obliged by the non-competition clause when choosing her next profession, there would be no disadvantage to the employee in that sense. However, in this decision, the Supreme Court of the Czech Republic, in addition to the literal version of the Czech Labor Code, states that withdrawal from the non-competition clause by the employer is only possible if the reasons for such withdrawal have been agreed in advance. In the light of the foregoing, the general binding nature of such a legal opinion can be regarded at least as disputable as it departs directly from the literal version of the Czech Labor Code and, to a certain extent, it can be perceived as eroding the constitutionally protected principle of legal certainty and the imposition of obligations only by law.
Judgment of the Supreme Court of the Czech Republic issued under Ref. No. 21 Cdo 4986/2010 from 20th September was based on the following merits:
- on 28 March 2008, the employee issued the termination of the employment; the employment was to be terminated on 31 May 2008,
- the employment contract did not contain any clauses on the possibility of terminating the non-competition clause,
- the employer, on receipt of the notice on 27 May 2008, allegedly delivered to the employee a withdrawal from the non-competition clause (this is a controversial case because there is no evidence that the employee was served) and the reason for the withdrawal was not given.
In this case, the Supreme Court of the Czech Republic proceeded from the factual situation, when not only the employment contract did not regulate the possibility to terminate the non-competition clause, but it was not proved that the withdrawal was delivered to the employee. The resignation was re-served only after the termination notice has been given and just before the expiration of the notice period. In addition, the withdrawal did not contain a definition of the reason why the non-competition clause had been withdrawn from.
The Supreme Court of the Czech Republic, in its decision, inter alia, disagreed with such an interpretation of Art. 310 par. 4 of the Labour Code, which would entitle the employer to withdraw from the non-competition clause for any reason or without giving reasons arguing that the indication of the reason for withdrawal is an immanent part of any unilateral withdrawal from a legal act. It is understandable and clear from the merits of the judgment why the Supreme Court of the Czech Republic inclined towards the employee.
Nevertheless, as in the above-mentioned judgment Ref. No. 21 Cdo 4986/2010 from 28.3.2012, we can not agree with the general binding legal opinion that has been drawn up on the basis of such factually specific cases and which, if applied to a standard situation, would result in the imposition of disproportionate restrictions on the employer and questioning of the employer's right to withdraw from the non-competition clause, which, without further restriction, is contained in the provision of Art. 310 par. 4 of the Labour Code.
Withdrawal in case of an agreement with the employee
In our opinion, the aforementioned judgments of the Supreme Court of the Czech Republic need to be interpreted in the light of the facts of the cases in question and any other general conditions which should be abided with can not be inferred from them without being explicitly stated in a law. Article 4 of the Charter of Fundamental Rights and Freedoms states that "Obligations may be imposed only on the basis of the law and within its limits, and only while maintaining of fundamental rights and freedoms." Therefore, in our opinion, it is not possible to generalize the conclusions in specific cases that were guided by the intent of protecting the employee as a weaker party with respect to violation of contractual and statutory provisions by the employer and thus to impose additional obligations on employers in excess of Art. 310 of the Czech Labour Code.
The merits out above are substantially different from those which would have arisen if the employer and the employee jointly agreed in the employment contract on the possibility of unilateral withdrawal from the non-competition clause for any reason or for no reason. In such a case, the employee would have been aware of the employer's right from the outset and would have explicitly agreed to it on signing the employment contract.
The questioning of the validity of such a provision would call into question the negotiated contractual arrangements and obligations. The condition set by the Supreme Court of the Czech Republic in its decision-making practice over and above the conditions contained in the Labour Code in the sense that the employer and the employee have to negotiate in writing the possibility and reasons for withdrawal from the non-competition clause in the employment contract would, in our opinion, be fulfilled.
Of course, the statutory condition is that, if the withdrawal occurs on the part of the employer, it is only necessary to do so for the duration of the employment relationship, otherwise there would be a violation of the law, and the aforementioned argumentation of the Supreme Court of the Czech republic could be applied in the sense that the employee would be limited while choosing another job.
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Based on the above assessment, especially given the considerable specificity of the facts of the cases dealt with by the Supreme Court of the Czech Republic and consequently the deviation from the language version of the Labour Code, we consider that the withdrawal of the employer from the non-competition clause, if the possibility of withdrawal from the non-competition clause was agreed in advance with the employee in writing and the employee would not be limited in any way in the further selection of his job, would be validly executed.
However, it should be noted that Czech courts usually decide to favor employees as "weaker parties", and that courts may impose stricter conditions on withdrawals of employers from non-competition clauses, even if they do not follow the law. However, the Supreme Court of the Czech Republic itself has to change the approach of Czech courts to assess the withdrawal of employers from the clauses of the ban on competition, in the context of some of its future decisions, as the the lower courts in the abovementioned judgments usually refer to the abovementioned judgments in interpreting the withdrawal from the ban on competition.
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