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08. Restrictive Covenants

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08. Restrictive Covenants

Definition and Types of Restrictive Covenants

Any type of agreement in an employment contract or obligation that either restricts the employee from taking some action or which requires the employee to abstain from a specific action, falls under the definition of a restrictive covenant.

Types of Restrictive Covenants

  • Non-compete clauses

It is permissible to include non-compete clauses in the employment agreement, during the labour relationship. A breach can lead to termination for cause.

  • Non-solicitation of customers

This type of clause can be included as a non-compete prohibition during the labour relationship.

  • Non-solicitation of employees

This type of clause can be included as a non-compete prohibition during the labour relationship.

Enforcement of Restrictive Covenants – Process and Remedies

In Chile, there are no labour rules expressly regulating restrictive covenants or prohibiting them. However, the Chilean Constitution explicitly protects the employee’s freedom to work and the right to free choice.

Notwithstanding the above, non-compete clauses after labour termination have been accepted as valid when they are provided for in writing; a form of compensation is paid to the employee; and their duration is reasonable. In practice however, enforceability is difficult.

Use and Limitations of Garden Leave

An employee who is leaving a job, having resigned or otherwise had his employment terminated, is instructed to stay away from work during the notice period, while remaining on the payroll. Garden leave is not regulated in Chile. As a result, the parties could agree to such a scenario, but the employer however, cannot unilaterally impose it.

Any questions

Ask our member firm Cariola Díez Pérez-Cotapos in Chile