When a post-contractual non-compete agreement is declared null because it does not comply with the legally established requirements, the company can, in certain cases, recover the amounts paid to the employee as consideration, because the cause that justifies it disappears.

Article 21.1 of the Workers’ Statute (WS) prohibits employees from rendering services for several employers simultaneously when it implies unfair competition or when the parties have agreed to full dedication, by means of express economic compensation.

For once the employment relationship has ended, article 21.2 of the WS regulates the possibility of establishing a limitation to the right to work of the employee who leaves the company, by formalizing an agreement that complies with these requirements:

  • that the duration does not exceed two years for technicians and six months for other employees;
  • the employer has an effective industrial or commercial interest in it; and
  • the company pays the employee an adequate financial compensation.

Once the agreement has been entered into, its effects are binding on both parties during its term. However, it may happen that:

  • the employee breaches the agreement, which could lead, in addition to the company being able to demand its due observance, to the employee having to compensate the company, normally by returning the amount received as consideration for the period of breach and/or reimbursing the proven damages caused by the violation;
  • the company breaches the agreement, which could result in the employee claiming its respect or its annulment, recovering full freedom to work; or
  • the covenant does not comply with the legally established requirements, so that the employee requests the declaration of its nullity or claims the company to adjust it to such requirements, for example, by fixing the corresponding adequate compensation, when it is lacking, or reducing the limitation period when it exceeds the maximum allowed.

Courts and tribunals may declare a post-contractual non-compete agreement null when the company does not have the required industrial or commercial interest or when the compensation is not sufficient or proportional to the limitation of the employee’s right to work.

The doubt then arises as to whether, once the nullity has been declared, the employee must return to the company the amounts received in compensation for the agreement that was never legally valid.

And this doubt can be dispelled in favor of the company when the employee has received a compensation for the post-contractual non-compete obligation undertaken, and the agreement is declared null without the employee having complied with it. This is the logical consequence that avoids the unjust enrichment of the employee, since with the declaration of nullity of the agreement from which it derives, without, moreover, the agreed limitation having come into effect, its consideration ceases to be justified.

A similar result occurs if the agreement is declared partially null because it has a duration longer than that legally established: the employee would have to return the financial compensation received in the part proportional to the time exceeded that has not yet been fulfilled.

In short, it is important to comply with the legal requirements for the execution of post-contractual non-compete agreements to be able to demand their observance, but if this has not been done, the company, in certain cases, will be able to recover what has been paid to the employee as consideration.

 

Fernando Pomposo

Garrigues Employment & Labor Law Department