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08. Restrictive Covenants
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08. Restrictive Covenants

Definition and Types of Restrictive Covenants

Restrictive Covenants are regulated by a limited extent within the labour law. It is allowed to stipulate that an employee should not engage in any activity in competition with the employer, and should not perform work under an employment relationship, or on any other basis, to the benefit of any entity involved in such an activity (non-competition clause), unless such activity is specifically allowed as defined in a separate agreement. This includes non-solicitation of customers.

Accordingly, this rule applies to any post-employment non-competition agreement concluded by an employer and an employee, who has access to particularly sensitive information, the disclosure of which could cause damage to the employer. The agreement should define the extent of the non-competition clause and the amount of compensation due to the employee from the employer.

However, it must be remembered that an employer may not prohibit an employee from concurrently remaining in an employment relationship with another employer or concurrently remaining in a legal relationship which is the basis for the provision of work, except in the case of concluding a non-competition agreement or if separate provisions of law stipulate otherwise.

Types of Restrictive Covenants

The extent of the restrictive covenant (i.e. in scope, length of time and geographic reach) as well as the consequences for each party in the event of a breach of said covenant, and any other pertinent details should be clearly defined in the agreement between the employer and employee.

Non-competition agreements and non-solicitation of customers clauses are recognised and may be enforceable under the law. However, non-solicitation of employee clauses are invalid based on case law as they violate the right to free choice of employment;  no person may be prohibited from exercising his/her profession.

Enforcement of Restrictive Covenants – Process and Remedies

If an employer suffers damage due to the employee’s breach of the non-competition provisions of the employment contract or a post-employment non-competition agreement, the employer may claim compensation.

The non-competition agreement becomes invalid before the expiry of the term of the agreement referred to therein, if the grounds justifying the non-competition clause have ceased to exist, or if the employer is in breach of the obligation to pay compensation.

Use and Limitations of Garden Leave

The employer may exempt the employee from the obligation to perform work until the lapse of the notice period, upon termination of the employment contract. During the period of exemption, the employee retains the right to remuneration.

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