Non-Competition Clauses In Employment Law: New Developments
Employers frequently use non-competition clauses in employment contracts to protect their manufacturing or commercial secrets and/or their particular relationship with their clients after employees cease working for them. This Newsletter provides an overview of the latest case-law developments in this field, taking into account some recent rulings of the cantonal courts, as well as the Swiss Supreme Court.
Depending on their activity, employers have a legitimate interest in ensuring that former employees who have just ceased working for them refrain from exploiting the knowledge they have acquired during their employment. The inclusion of a post-termination non-competition clause in an employment contract may provide employers with additional protection to that provided by the usual obligation not to reveal confidential information, which already exists in law (art. 321a par. 4 CO and art. 162 CP). By accepting a non-competition clause, employees undertake to refrain from certain actions. This obligation can however jeopardize their future job prospects, which is why, in order to protect employees, the Swiss Code of Obligations makes provision, in art. 340-340c, for non-competition clauses to be subject to certain conditions, which have been strictly interpreted in many recent cases.
REMINDER OF THE GENERAL PRINCIPLES
The conditions governing non-competition clauses in Employment Law are set out in art. 340 CO, which states that:
the non-competition covenant must be made in writing (art. 340 par. 1 CO);
employees must be fully entitled to exercise their civil rights at the time of signature (art. 340 par. 1 CO);
the working relationship must make it possible for employees to have knowledge of their employer's clientele or manufacturing and commercial secrets (art. 340 par. 2 CO). Non-competition clauses based on knowledge of the client base are in principle unacceptable in circumstances where the relationship between employees and clients is essentially a personal one, based on employees' abilities and their particular relationship with clients. This will be discussed in greater detail later (see Sections 3.1 and 3.2);
exploitation of this information must have the potential to cause employers substantial harm (art. 340 par. 2 CO). A causal relationship must exist between the knowledge gained and the potential to cause such harm.
A non-competition clause in an employment contract which fails to meet all of these conditions renders the clause null and void.
2.2 Scope and Content
Art. 340a par. 1 CO states that prohibition must be appropriately restricted in terms of time, place and scope, so as not to compromise unfairly employees' future job prospects. It may exceed three years only in special circumstances.
Therefore, the clause prohibiting competition may not exceed the boundaries of what is justifiable by employers' interests and its effects may be reduced by the court when deemed excessive (art. 340a par. 2 CO).
Whether or not employers remunerate employees in consideration of their acceptance of the restraint is also a factor to be taken into account in assessing whether or...
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