Czech Republic: Czech Regulation on Non-compete Clauses

Author: Klára Sleglova

In the Czech Republic, non-compete clauses in employment law are governed by the Labour Code. They can restrict employees from engaging in competitive activities for up to one year after termination, provided the employee’s role justifies it based on the nature of the information and knowledge acquired in the course of employment. The clause must be mutually agreed upon in writing, and employers are obliged to provide a monthly financial compensation of at least 50% of the employee’s average monthly earnings during the clause’s validity.

Non-compete clauses can include a contractual penalty for breaches. Nevertheless, the penalty must be reasonable. If the employee pays the penalty, the non-compete obligation ends upon payment. Alternatively, the employer can withdraw from the clause during employment, or the employee can terminate it if the employer fails to pay the compensation within 15 days of its due date. The clause can also be terminated by mutual agreement between the parties.

 

Differences from General Non-Compete Clauses

Non-compete clauses in employment law significantly differ from those regulated by the Czech Civil Code. The Labour Code restricts an employee’s activities directly competitive with the employer’s business, while the Civil Code covers a wider array of restrictions. Moreover, under the Civil Code, these clauses can last up to five years and do not require monetary compensation, though they must maintain a balance of obligations to ensure fairness.

 

Judicial Perspectives on Non-Compete Clauses

The Czech Constitutional Court ruled that employers cannot unilaterally withdraw from a non-compete clause without just cause. The Supreme Court further stipulated that withdrawals must be justified and reasonable, reflecting a balance of interests. For instance, it is not acceptable for an employer to withdraw from a non-compete clause simply because the employee finds a new job outside the employer’s scope of business during the notice period. On the other hand, it is possible to agree on the possibility of unilaterally withdrawing from a non-compete clause, typically directly in the employment contract.

Key Action Points for Human Resources and In-House Counsel

• Non-compete clauses in employment may be concluded for up to one year.
• The employee is entitled to receive at least 50% of their average monthly earnings for the entire duration of the non-compete clause.
• Judicial decisions require justified terms for employer withdrawal from these clauses.