Employer’s Withdrawal from the Non-Compete Clause Without Reason in the Czech Republic

In a recent verdict that captivated both the legal community and the public, the Supreme Court of the Czech Republic addressed a complex case involving a non-compete clause between a former employee and his employer. The dispute centered on whether an employer can withdraw from a non-compete clause without stating a specific reason, especially when the employee had committed not to engage in competing activities for a certain period after the termination of employment. The appellate court faced the challenging task of balancing the protection of the employer’s rights while providing adequate protection for the fundamental rights and legitimate interests of the employee. The outcome? A judgment that could significantly influence future practices regarding non-compete clauses in employment relationships.

Factual Background

The plaintiff, serving as a director and subsequently as an operations director at the defendant’s company, contractually agreed to refrain from any competing activities for six months after the end of his employment, during which he was to be compensated an amount equivalent to his monthly salary. However, shortly before the plaintiff’s employment ended, the defendant withdrew from the non-compete clause, justifying that the information acquired by the plaintiff during his employment was not valuable enough to warrant protection given the duration of the plaintiff’s employment with the defendant and that this information would enable him to work in a similar position with a competitor. Despite this withdrawal, the plaintiff sought compensation, which the defendant refused.

Argumentation of the Supreme Court of the Czech Republic

The Supreme Court concluded that the plaintiff’s appeal against the city court’s verdict, which confirmed the rejection of his claim for compensation for adhering to the non-compete clause, was unfounded and dismissed his appeal. The Court referred not only to the Constitutional Court’s finding, case no. II. ÚS 1889/19, dated May 21, 2021, stating that an employer may withdraw from a non-compete clause without stating a reason if so agreed, and in such cases, it is necessary in legal proceedings to investigate and prove whether the employer’s reasonless withdrawal from the non-compete clause constitutes arbitrary behavior or abuse of power. Therefore, individual circumstances of the specific case must be considered, such as the timing of the employer’s withdrawal from the non-compete clause, reasons the employer considers further binding by the clause unreasonable, whether the employee chose his new employment considering the binding non-compete clause, etc.

Considering the Constitutional Court’s conclusions, the Supreme Court in its verdict, case no. 31 Cdo 2955/2023, dated December 13, 2023, concluded that the employer’s option to withdraw from the non-compete clause without reason during the employment period is in line with the purpose of the non-compete clause if it primarily serves to protect the rights and interests of the employer and if the parties have agreed that the employer can evaluate whether the employee has acquired information, knowledge, or know-how during their employment constituting trade secrets capable of giving a significant advantage to a competitor, thus significantly hindering the defendant’s operation.

In this specific case, the appellate court concluded that the general courts sufficiently considered facts such as the plaintiff’s short tenure as an operations director, his decision to start a business in a non-competing field, and the timing of the defendant’s withdrawal from the clause. The Supreme Court concluded that the defendant did not act arbitrarily or abuse its right to withdraw from the non-compete clause, therefore making its withdrawal valid.

Legal Principle

If the parties to a non-compete clause expressly agree that the employer may withdraw from the non-compete clause without stating a reason, such an arrangement is valid. However, judicial protection of the fundamental rights and legitimate interests of the employee must be ensured if arbitrary action or abuse of rights by the employer is proven. The employer’s withdrawal from the non-compete clause must be evaluated in light of the specific factual circumstances of the case, and cannot be deemed invalid without further consideration.

If you require legal assistance regarding a non-compete clause or any other related legal issue, We are here for you. Please contact me at tel. 602 323 723, JUDr. Michal Kocián, Attorney at Law.

The information in this article adheres to the current legal statutes and recent jurisprudence.