Violation of a Non-Compete Clause by an Employee

Violation of a Non-Compete Clause by an Employee

A breach of a non-compete clause by an employee is a challenge faced by businesses across various industries. This issue becomes especially critical in the context of protecting trade secrets, know-how, and a company’s market position. Non-compete clauses—typically included in employment contracts or post-employment non-compete agreements—are designed to prevent former employees from using the knowledge and experience gained to the detriment of their previous employer. Despite clear legal frameworks and contractual obligations, violations of such provisions are not uncommon and may result in serious legal and financial consequences for both employees and companies.

What are the consequences of breaching a non-compete clause? How can employers pursue their claims? How is compensation calculated?

Non-Compete Violations Can Involve All Types of Personnel

It is important to note that non-compete obligations are not uniformly applied to all employees and collaborators. Depending on the specific circumstances of each case, the legal basis and the scope of the restriction may vary. In practice, different actions taken by individuals subject to such clauses may constitute a breach. The following categories outline who may potentially violate a non-compete clause and under what circumstances:

Employees – may breach a non-compete clause by engaging in competitive activities during the course of employment. Violations may include running their own business within the employer’s industry, taking on employment with a competitor, or rendering services on other legal grounds for a competing entity. Any paid activity that overlaps with the employer’s business scope may constitute a breach.

Former Employees – may breach post-employment non-compete agreements that restrict them from engaging in competitive activity after termination. Such agreements are especially common for individuals with access to key business information. Breaches may include engaging in prohibited activity while receiving compensation for refraining from competition.

Management Board Members and Liquidators of LLCs – board members may violate non-compete provisions by engaging in competitive business or participating in competitor companies as shareholders, officers, or stakeholders—particularly if they hold at least 10% of shares or interests. Liquidators may also breach non-compete rules by handling competitive business during liquidation.

Partners in Partnerships – may violate non-compete obligations by engaging in competitive activity without the consent of other partners. This includes participation in civil partnerships, general partnerships, or as general partners or members of management bodies. During liquidation, non-compete clauses mainly apply to partners acting as liquidators.

Contractors/Collaborators – bound by civil law agreements may also violate non-compete clauses if such agreements explicitly prohibit competitive activity. Breaches include any competitive acts contrary to the contractual terms, with legal consequences determined according to the principle of freedom of contract.

This article focuses on cases where a non-compete breach is committed by an employee or former employee.

Non-Compete Clauses and Employment Contracts

Non-compete clauses serve to protect the employer’s business interests and may entail serious consequences for the employee upon violation. The primary sanction during employment is termination of the employment contract due to employee fault. However, the financial consequences vary depending on whether the breach was intentional or negligent.

If the breach was unintentional, the financial liability of the employee is limited to three months’ salary. In cases of willful misconduct, the employer may seek full compensation for damages. This means the employee could be liable for the entire amount of loss suffered by the employer.

To claim compensation, the employer must prove before the court the occurrence and value of the loss, as well as the causal link between the employee’s actions and the damage. These are necessary elements for a successful claim.

Importantly, a non-compete clause applicable during employment cannot provide for a contractual penalty. The Supreme Court confirmed this in its rulings of October 10, 2003 (I PK 528/02) and January 8, 2008 (II PK 120/07), holding that the rules of employee liability under the Labour Code are exhaustive. Therefore, applying the Civil Code—especially Article 483, which permits contractual penalties—is inadmissible in this context.

Breach of a Post-Employment Non-Compete Agreement

Post-employment non-compete agreements are crucial tools used by employers to safeguard their business interests, especially where former employees had access to strategic corporate information such as business models, key client lists, trade secrets, or proprietary technologies.

Such agreements must clearly define the duration of the restriction—typically no longer than two years—and specify the compensation owed to the employee for observing the clause. This compensation is often a percentage of the employee’s former salary and is intended to fairly offset professional limitations.

Violations of such agreements can result in severe consequences for the former employee, including high contractual penalties. The former employee may be required to:

Fully compensate the employer for losses caused by the breach,

Return any compensation already received for complying with the clause,

Face cessation of further compensation,

Reimburse unrealized business gains lost due to the breach,

Be subject to additional civil claims for damages.

How to Prove a Non-Compete Violation

Determining whether a former employee has violated a non-compete agreement can be a complex process requiring not only legal expertise but also strategic insight and investigative skill. In a business environment where loyalty and competition often collide, detecting and proving violations is critical to protecting corporate interests.

Common forms of non-compete breaches include:

Starting a competing business offering similar products or services, which may lead to customer poaching and revenue loss.

Reconnecting with key clients or suppliers, using prior business relationships to gain competitive advantage.

Disclosing trade secrets such as client databases, marketing strategies, or internal processes, which can significantly harm the company’s market position.

Leaking internal information to competitors, including price lists or product specifications.

“Under-the-table” work for competitors, making enforcement and detection more difficult.

Poaching former colleagues, which depletes human resources and increases the risk of further information leaks.

Using the former employer’s intellectual property, including projects, patents, or trademarks, in new professional engagements.

These violations can range from overt actions to subtle misuse of relationships or confidential knowledge. Protecting against them requires not only precise contractual drafting but also vigilant market monitoring and swift legal action when breaches are detected.

Consequences of Breaching a Non-Compete Clause

Penalties for violating a post-employment non-compete clause are a vital part of such agreements and play a key role in protecting the employer’s interests. Legal and practical consequences can be strict and multifaceted, serving both as deterrents and as safeguards against unfair competition.

Liability for Damages

Beyond contractual penalties, former employees may be liable for actual damages caused to the employer. If the company can demonstrate quantifiable losses stemming from the breach, the former employee may be required to compensate. In cases of negligence, liability may be capped at the equivalent of three months’ salary, but in cases of willful misconduct or gross negligence, full compensation may be sought.

Material Liability Rules

Claims may be pursued under:

Contractual liability, e.g. enforcement of a contractual penalty, or Material liability, as defined by the Labour Code.

To pursue a civil claim, the employer must establish:

A valid non-compete agreement, Breach of the clause by the employee or former employee, Actual loss suffered as a result of the breach, Fault (intentional or negligent conduct), A causal link between the breach and the damage.

Case Law

Judicial rulings confirm that employee liability is typically linked to culpability. The Supreme Court has emphasized that compensation is only due where the breach directly results in damage to the employer and is attributable to the employee’s fault.

Conclusion

The enforcement of non-compete clauses is not merely about punishing disloyal conduct but serves as an essential preventive strategy. By clearly defining and strictly enforcing such rules, companies demonstrate a firm stance on protecting their business interests and maintaining market integrity. Compensation clauses act not only as a deterrent but also as safeguards for intellectual capital. Tying financial consequences to former salary levels sends a clear signal: actions detrimental to the company will have real and measurable repercussions. Ultimately, enforcing non-compete rules helps foster a culture of loyalty and trust—foundations of long-term success in a competitive business landscape.