The non-compete clause is specifically governed by the Labor Law to establish the collaboration relationship between the employer and the former employee after the termination of the employment contract, if the employer considers having a highly competitive business.
The non-compete clause is initiated by the employer and is concluded with the employee prior to starting working or during his / her employment.
The non-compete clause cannot be concluded after the termination of the employment contract, as after the termination of it, the parties no longer have rights and obligations towards each other.
The scope of the non-compete clause is: for a non-compete allowance (consideration), the employee undertakes to not carry out for themselves or for others, competing activities after the termination of the employment contract.
The general purpose of these agreements is to restrict the ability of employees who sign the agreement to go into business against the employer within a certain geographic area for a certain period of time.
For a non-compete clause to be valid, it must contain:
- Nature of duties restricted to the employee upon the cessation of the contract, without withholding the employee from practicing his profession;
- The third parties (competitors) which the employee is not allowed to work or engage in activities with.
- The geographical scope where the employee cannot perform competing activities;
- The duration of the clause, which cannot be longer than 24 months;
- The monthly amount of the non-compete consideration.
How do you ensure that you are not withholding the employee from practising his profession?
In order to allow the employee to continue working, it is mandatory to clearly mention the competitors and the geographical area where he’s not allowed to work in. Every company knows its competitors on the market and these are the third parties stated in the clause, for which the employee is not allowed to work with directly or indirectly. The employer cannot mention one or more CAEN codes as third parties, as it would limit the free practice of employee’s profession.
This is applicable for the geographical areas as well: the employer can mention 1-5 counties as geographical areas and not the whole country.
When and how is the non-compete clause concluded?
The non-competition clause is concluded
between the employer and the employee before the start of the employment or during it, in written form, in Romanian, with the agreement of both parties.
How to calculate the non-compete allowance?The non-compete allowance shall be negotiated between the parties and shall amount to at least 50% of the average gross wage income (salary, bonuses, other benefits) of the employee, according to employee’s last six months prior to the date of termination of the employment contract. If the employee doesn’t have at least 6 months of work experience with the employer who enforced the non-compete agreement, the allowance will be 50% of the average gross income due to the employee for the period worked. The non-compete allowance it’s not a wage-like benefit, it represents an expense made by the employer, deductible when calculating the taxable income, and the tax shall be collected from the former employee.
What happens if the employer or the employee does not comply with the non-compete clause?
If the employer does not comply with the non-compete clause, the employee may notify the territorial labor inspectorate or the competent court, which analyses compliance / non-compliance with the provisions of the non-competition clause.
If the employee fails to comply with the non-compete clause, he/she may be required to reimburse the allowance received and to pay damages corresponding to the loss suffered by the former employer.
Can the non-compete clause be dropped before ahead of its due date?
The non-compete clause may be terminated prior to its due date only with the agreement of both parties.
When does the non-compete clause take effect ?
The non-competition clause takes effect after the termination of the employment contract and does not apply if the termination of it occurred lawfully, according to art. 56 para. (1) lit. a), b), d), h) and j) of the Labor Law, or it occurred at the initiative of the employer for reasons not related to the employee.
Gabriela is a HR expert with more than 10 years experience