Nowadays, it is an increasingly widespread practice by companies to include them in labor contracts, whether they are senior managers or technicians or the entire workforce (depending on the sector of activity), called “post-contractual non-competition agreements”.

And, therefore, it is important to know what these pacts are.

Mainly, it is an agreement between the company and the worker, in which the worker is prohibited from carrying out his professional activity for a company of the competition once the employment relationship between the parties has ended. It can be understood as an extension of the labor relationship beyond the validity of the work contract, but for having effects on labor matters, the agreement msut be linked to the work functions that the worker developed.

Requirements of the post-contractual non-competition agreement

In order for a non-compete agreement, after the employment contract is terminated, to be valid, it must comply with a series of requirements, such as:

  1. The company must have an effective industrial or commercial interest that must be included in the non-competition agreement.
  2. The worker must be paid with an adequate financial compensation.
  3. It cannot exceed the maximum duration of 2 years, for technicians, and 6 months, for other workers
  4. It cannot be disproportionate or produce an imbalance between the parties, because it’s a pact with obligations for both parties, whose compliance cannot be left to the decision of only one of them.

The pact requires a limitation in time and justify the commercial or industrial interest of the company, as well as establishing an economic compensation to the worker that compensates for not being able to work in the same sector where he was performing his last work activity during the agreed period of time.

The purpose of this agreement is to prevent the worker from taking advantage of the information made available by the company and the relationships maintained with clients and / or suppliers, for their own benefit, avoiding the damage that would be caused by the use of the knowledge acquired by the worker in another company of the competition. There is also an attempt to reduce the risk of worker abandonment resulting from competitive job offers.

The effectiveness of the pact is directly linked to the requirement that an adequate economic compensation be included for the worker; therefore, such compensation is mandatory.

Compensation in the post-contractual non-competition agreement

The parties may freely agree on the amount whenever there is a proportionality between the duration of the commitment and the amount of compensation, so that a longer duration of the obligation not to compete requires a greater amount of the agreed compensation and vice versa.

The foregoing is important since the financial compensation (as a compensation concept) has a dissuasive purpose for the worker so that he refrains from carrying out actions tending to incur competition with the company.

As well as the ways to determine the amount of the financial compensation, the most used are the following:

  • Set a percentage of the salary at the time of termination, or a percentage above the average of a fixed salary period of the worker
  • A part of the last payment received, whether annual or monthly.
  • A fixed monthly amount (it is not necessary to wait for the contract to be terminated to proceed with its payment, and periodically paying the compensation from the beginning of the contract)

It is allowed that the moment of the payment of the economic compensation con be freely agreed, either during the term of the contract, at the time of the extinction or at a later time.

Being the most usual modalities:

  • The advance of the payment in the monthly payroll.
  • The payment of a fixed amount, which can be paid in periodic payments throughout the term of the non-compete agreement.
  • The single payment at the end of the term of the commitment of non-competition on the part of the worker.

It should also be remembered that the agreement can be void in case it is considered abusive, since it is important:

  • The proportionality between the amount that the worker will receive and the reduction of their possibilities of professional relocation in the same sector and their right to free choice of profession and occupation,
  • The type of activity in question and the level of training, since the greater the degree of training and specialization, the greater the importance of the non-competition agreement, due to its possibilities of providing services in other jobs located in concurrent companies.
  • If the amount provided as compensation to the worker is not adequate or the consequence of the worker’s breach of the agreement is disproportionate.

Breach of the agreement occurs when one of the parties does not comply with the obligation assumed. That is, the company fails if it does not meet the amount stipulated in the financial compensation and, for its part, the worker fails to comply when carrying out the prohibited activities (such as working in the sector of the company or being hired in a company of the competition) during the established period of time.

Finally, although this type of post-contractual non-competition agreements are usually made at the beginning of the contract, and are articulated in the formalization thereof, they can also be concluded at any time after the employment relationship begins, provided that it is achieved through of a joint will between the company and the worker.

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