Prohibition of competition clause

Purpose

Some employees, by virtue of their position, have knowledge of the company's business, manufacturing and/or customer secrets. The purpose of the non-competition clause is to prevent the employee from using this information with a new employer at the end of the employment relationship and thus from competing with his former employer.

Employees

Not all employees can be bound by a non-competition clause. The employee must have access to certain confidential information that could cause significant harm to the employer if it were to be revealed. It is not always easy to distinguish between what is the employer's business and trade secrets and what is the employee's professional experience.

Limitations

The non-competition clause directly affects the economic future of the employee as it limits his or her possibilities to find a new job in the same sector. It is imperative that the clause be appropriately limited in terms of location, time and type of business.

Span

The scope of the non-competition clause will depend on the particular circumstances. With regard to location, the non-competition clause may only extend to the territory in which the employee is likely to compete with the employer. Worldwide non-competition clauses are problematic and are only valid under very restrictive conditions.

The duration of such a clause will depend on how quickly technology evolves in the employee's field of activity. It may be longer if the employee has knowledge of secrets that could cause damage to the employer long after the employment relationship has ended. If the employee only has knowledge of the employer's clientele, the duration of the non-competition clause should be shorter.

Compensation

In some countries bordering Switzerland, a non-competition clause is only valid if the employer pays compensation to the employee. In Switzerland, this is not the case in principle. However, compensation to the employee will be necessary if the employer intends to extend the non-competition clause beyond what is permitted by law. 

Sanctions

To be effective, the non-competition clause must set out a comprehensive written sanction mechanism. If the employee violates the non-competition clause, the employer will have several sanctions at its disposal that will allow it to act quickly and obtain compensation.

In order to be effective, the non-competition clause must provide for a number of sanctions in writing. The employer will set a contractual penalty, the amount of which is not without limits or restrictions. If the amount of the contractual penalty is not sufficient, the employer may obtain compensation for the damage, provided that it is able to provide quantified proof.

 In certain very specific situations, the employer may require the employee to cease any activity contrary to the clause. In view of the risk of serious harm to the employee's economic future, this measure can only be implemented under very strict conditions.

Early termination

As a general rule, the non-competition clause ends after the period for which it was intended has elapsed. However, it can be terminated early. The non-competition clause is terminated when the employee is dismissed without just cause. The purpose of the clause is to protect the economic interests of the dismissed employee, without him or her being able to be blamed for anything. The clause also ends if the employee resigns for a justified reason attributable to the employer. The question of whether the termination was justified or not is particularly delicate.

Substantial prejudice

Furthermore, the non-competition clause is only valid for as long as the employee is likely to cause substantial prejudice to the employer. Such a clause can be terminated early if this is no longer the case.

Transfer of business

Sometimes the employer decides to transfer his business to a third party. In such a case, the employment contracts are transferred together with the company to the new owner. Is the new owner protected or does he have to conclude new non-competition clauses with the employees?