Definition of Restrictive Covenants
The Labour Code includes provisions that address clauses limiting employees’ freedom to work, such as non-competition agreements and permanence agreements.
In essence, the first are designed to prevent employees from competing with their former employer after the termination of their employment and the second are aimed to guarantee that the employee remains working for the employer after a relevant investment in the employees training or education.
Types of Restrictive Covenants
a. Non-compete clauses
Post-contractual non-compete clauses are designed to prevent employees from working for competing companies for a specific period after their employment ends.
Under Portuguese law, any clause in an employment contract or collective labour agreement that restricts an employee’s freedom to work after the contract ends is generally considered null and void.
However, an exception to this rule applies if:
- The clause is part of a written agreement
- The employee’s future activity could potentially harm the former employer
- The employee receives compensation for this restriction.
The compensation may be reduced if the employer has made significant investments in the employee’s professional training.
Generally, non-compete agreements are limited to a maximum duration of 2 years. However, in some cases the non-compete period can be extended up to 3 years.
b. Non-solicitation of customers
Portuguese law does not specifically regulate this type of restriction and it is controversial whether they are enforceable in practice – it is recommended a case by case analysis in this regard.
c. Non-solicitation of employees
Portuguese law does not specifically regulate this type of restriction and it is controversial whether they are enforceable in practice – it is recommended a case by case analysis in this regard.
Enforcement of Restrictive Covenants – Process and Remedies
If an employee breaches a non-compete agreement, they may be required to repay any compensation received under the clause and could be liable for damages if the employer proves actual harm. In cases of uncertainty regarding the amount to be returned, or if the employee refuses to comply with the agreed repayment, the employer can seek recourse in court to resolve the issue.
Similarly, the employee can take legal action against the employer if the agreed compensation is not paid while the non-compete clause remains in effect. The clause may be declared void if it does not meet legal requirements.
Use and Limitations of Garden Leave
When an employee resigns or is given notice of dismissal (such as in the case of a collective dismissal), employers often opt to grant the employee paid leave. However, employers cannot force the employee to stay away if the employee intends to continue working during the notice period. An option available to the employer is to require the employee to use any remaining holiday entitlement during the notice period, effectively allowing the employee to leave earlier than the official end of the notice.
Under certain conditions provided by law, garden leave is possible during pending disciplinary proceedings, especially after the employee has been formally notified of the charges.