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08. Restrictive Covenants
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08. Restrictive Covenants

Definition and Types of Restrictive Covenants

Restrictive covenants are bilateral agreements between the employer and the employee, and are used to protect key business information and ensure fair dedication to employees. It represents a limitation of the right to work and the free choice of profession or trade, so that any restriction of this constitutional right must be performed in compliance with all requirements established by labour law.  Non-competition rights and obligations are regulated in the Workers’ Statute.

Types of Restrictive Covenants

Non-Compete Clauses

Non-competition agreements are intended to prevent an employee from working in a competing company or sector after termination of employment. A non-compete obligation after termination, may not last longer than two years for technicians and six months for other workers, and will only be valid if the following requirements are met:

  • the employer has an effective industrial or commercial interest in such a non-compete obligation; and
  • the employee is paid adequate economic compensation.

Non-solicitation of customers

Spanish Labour Legislation does not specifically regulate this type of restriction, but case law has considered this restriction valid within the scope of the non-compete clause.

Non-solicitation of employees

Spanish Labour Legislation does not specifically regulate this type of restriction, but case law has considered this restriction valid within the scope of the non-compete clause.

Enforcement of Restrictive Covenants – Process and Remedies

If the employee breaches the non-competition agreement, he/she will be obliged to return the amount received for this concept and may be required to pay damages, should the company provide evidence of damage. In case of doubt when determining the amount of compensation to be returned, or refusal from the employee to comply with the agreed payment as compensation, the employer may appeal to a social court or an arbitrator (when specifically agreed) to determine said amounts. Likewise, the employee can make a claim against the employer when the agreed compensation was not paid although the non-compete clause remains in full enforceability. The clause itself could be declared void if the legal requirements were not met. However, it is also possible to cancel the agreement if both parties agree to it, but it can never be cancelled or waived unilaterally.

Use and Limitations of Garden Leave

The term during which an employee remains on normal salary and is bound by his/her contract of employment, but at the same time requested by the employer not to attend the office or contact clients or customers, is usually used only on disciplinary procedures while the investigation takes place. The employer cannot, unless expressly referred to in the employment agreement, put the employee under garden leave, as they are not provided for statutorily. This is the reason why they may only be mutually agreed to within the scope of the employment contract.

In the event an employer puts an employee on garden leave without having regulated this possibility within the contract, the employer bears the risk of having the employee file a claim for lack of occupation, which ultimately may result in a court claim requesting a constructive dismissal, on the basis of a severe breach of the employer’s duties for not procuring sufficient occupation.

Employers often use garden leave during an employee’s notice period to prevent the employee from having further access to customers, clients and staff and to prevent the employee from working for a competitor, but this is generally used in Spain only when there is evidence of gross misconduct by the employee.

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