Competition clause

On 2 May 2019, the Constitutional Court ruled by judgment file no. II. ÚS 3101/18 on a constitutional complaint in a case where a company sued a former employee for a breach of a negotiated competition clause. The employee had to refrain from work for a period of one year from the termination of his employment, which would be competitive for the former employer. Subsequently, the former employee violated the competition clause by working for 4 days by an employer, which has been a direct competitor to the complaining former employer.

The Constitutional Court stated that the competition clause provided in the Labor Code is based on Article 26. of the List of Fundamental Right and Freedoms, which guarantees free entrepreneurship. The constitutional interpretation of the Labor Code should guarantee employers the right to do business in an environment that conscientiously prevents misuse of gained know-how by work. The Constitutional Court also referred to the pacta sunt servanda principle.

Also the Constitutional Court did not agree with the conclusions of the general courts, which took into account the short period of employment of the employee. He stated that it is nowdays possible to transfer sensitive information within an hour or even minutes. He also pointed out, that if the former employee would fulfil the obligation set out in the competition clause, he would be compensated for his annual average wage. Therefore, even the contractual penalty, which was negotiated in the same amount and has been the subject of the dispute, was not set as immoral.