08. Restrictive Covenants

Definition and Types of Restrictive Covenants

There is no legal definition given for restrictive covenants in Romanian legislation. However, some legal provisions allow the inclusion of specific clauses in the employment agreements that can offer a guarantee of good will between the parties. Also, some legal provisions will impose sanctions directly, without the existence of any contractual clauses, for the inappropriate conduct of the employee, with regards to his current or former employer.

Types of Restrictive Covenants

Non-compete clauses

When negotiating an individual employment agreement, or during the existence of such an agreement, the parties can agree upon a non-compete clause for the employee. According to Romanian law, such clauses will be enforced only after the employment agreement is terminated (except for cases when the contract is terminated by the employer for reasons that are not related to the employee and some of the de jure termination cases). During the existence of the employment relationship it is considered that a non-compete obligation is implied, the employee having to fulfill his duties showing good will. In addition the employee has a fidelity obligation to his employer that also covers refraining from a conduct that might be considered as unfair competition.

According to the Romanian Labour Code, when agreeing upon a non-compete clause, the employee assumes the obligation not to perform any activities that could be considered as competition to his/her former employee, in his/her own interest or in the interest of a third party.

The non-compete clause is a monthly paid clause, legal provisions stating the minimum amount that the employer has to pay in order to enforce the non-compete clause. According to the Romanian Labour Code the non-compete indemnity cannot be lower than 50% of the gross salary the employee had during the last 6 months of his employment (or of entire period of employment if the agreement was in force for less than 6 months). Parties can negotiate a higher paid non-compete clause.

The maximum period for the non-compete clause is 2 years. Also, the non-compete clause has to be clear, meaning that when negotiating such a clause the parties have to state what exact activities are prohibited, who are the third parties for which the activity is prohibited and also the geographic area of the prohibition. The employer has to keep in mind that imposing a non-compete clause that restricts the possibility for the former employee to perform any paid activity is to be considered as a disproportionate restriction of his constitutional right to work.

Non-solicitation of customers

There are no express legal provisions that regulate the non-solicitation of customers. However the law on combating unfair competition sanctions the diversion of the clientele by a current or former employee or his representatives by using commercial secrets that belong to the company, if the company took reasonable measures in ensuring the protection of such secrets and the revealing of such secrets might cause damage to the company. Such conduct may lead to a fine for the employee.

Some additional clauses on non-solicitation of customers might be included in the employment agreement, but not expressly prohibited; the employer has to always keep in mind that any such clauses must be reasonable, clear and enforceable. In any court case related to the enforcement of such clause the judge will take into account the proportionality of the measures that the employer wants to impose with the damage that the employee’s conduct might cause to the employer’s activity.

Non-solicitation of employees

There are no legal provisions that regulate the non-solicitation of employees. However, given the general wording used by the fair competition legislation, this conduct might fall under the unfair competition conduct that can be sanctioned by the administrative bodies that monitor competition in Romania.

Enforcement of Restrictive Covenants – Process and Remedies

The employer can choose to enforce or not the non-compete clause in the employment agreement, when the agreement is terminated. As a rule, it is advisable to inform the former employee that the clause will not be enforced, in order for him to know that his conduct will not be restricted in any way. If he is not informed and the indemnity is not paid he can sue the former employer for the payment of the indemnity. However, he has to prove that he refrained from all the prohibited activities as stated in the clause.

If the employee does not respect the non-compete clause, the employer can sue for the entire amount of the indemnity paid plus any damages the former employee might have caused to the former employer.

Also, the former employee or the local labour inspectorate can ask the judge to diminish the effects of the non-compete clause.

In case of conduct that might fall under the fair competition legislation, the interested party can file a claim with the Competition Council that will analyse the conduct and establish if there is a case of unfair competition. The Council can issue administrative sanctions – fines. Also the company that suffers an imminent prejudice due to an act of unfair competition can ask the court to impose the obligation on the party that causes the prejudice (including his current or former employee) to refrain from the conduct responsible for the damage.

In case of breach of any other similar clauses included in the employment agreement the party that wants to enforce the clause has to address the court.

Use and Limitations of Garden Leave

Garden leave is not regulated under Romanian law. If the employment is terminated and the employer does not require the presence of the employee during the notice period, he can ask the employee to not perform work during the notice period. In case of resignation, the employer can waive his right to benefit from the notice period, meaning that he can agree for the employee to stop working immediately (and not pay the employee anymore). However, in case of dismissal the employer has to be careful in forcing the employee not to work during the notice period since the employer still preserves his constitutional right to work. Some collective employment agreements have provisions that allow the employee that was dismissed to perform work only for half of the normal working hours during the notice period in order for the employee to be able to actively seek employment (in this case it is up to the employee if he wants to benefit from this contractual clause).