What is a non-compete clause?

A non-compete clause is a legal agreement that limits the professional freedom of one of the parties to prevent them from carrying out activities that may entail unfair competition or harm the other party.

Thus, this clause prohibits a person or company from competing directly with another during a specific period and in a specific geographical area.

For example, within the framework of an employment relationship, the worker agrees not to carry out any other activity that may compete with the company, whether on his or her own account or as an employee, during the term of the contract or after its termination.

This clause is intended to protect the legitimate interests of the party requesting the non-compete, such as its clientele, its confidential information, its trade secrets or its position in the market.

The non-compete clause can be of two types: during the contract or once it has ended.

• The non-competition clause during the contract: implies one of the parties not to carry out professional activities for other companies or on their own that may conflict with the interests of the other party for the duration of the contractual relationship.
• The post-contractual non-competition clause means not carrying out activities that compete with the company for a certain period of time after the contract has ended.

Essential content

• It must be stated in writing in the contract or in a separate document.
• There must be a legitimate and justified interest on the part of the person requesting non-competition, that is, there must be a real risk of unfair competition or harm if it is not established.
• Adequate economic compensation must be established for those who accept the non-compete.
• A maximum duration of the clause must be set, which cannot be excessive or abusive, and which must be proportionate to the interest protected and the compensation received.
• The geographical and material scope of application of the clause must be respected, which must be reasonable and proportionate to the interest protected and the activity carried out.

Optional content

• The conditions for the exercise of the right of resolution or compensation by the person requesting non-competition, in the event of non-compliance with the clause by the person who accepts it.
• The possibility of assigning or transmitting the clause to third parties, by the person requesting non-competition, in the event of a change of ownership or legal status.

For example, if a company sells its business to another company, it can assign the non-compete clause it has with its former workers, as long as it informs them of this and maintains the agreed financial compensation.

In which contracts is it usually applied?

• Permanent employment contract
• Interim temporary employment contract
• Eventual temporary work contract due to production circumstances
• Shareholders agreement

Limitations

• It must respect the fundamental right to freedom of work and business, so it cannot totally prevent the exercise of the professional activity of the party that accepts the non-competition, but only restrict it as necessary to protect the legitimate interest of the other party.
• It may lose its effectiveness or validity if there is a change in the circumstances that motivated its establishment

Related concepts

• Exclusivity clause
• Confidentiality clause
• Lock-in clause
• Non-compete agreement