SERBIA: How to Properly Establish a Non-Compete Clause in Employment Relationships
Newsletter 148
A non-compete clause involves an agreement that specifies the types of work an employee cannot perform in their own name and for their own account, as well as in the name and for the account of another legal or physical entity, without the consent of the employer with whom they are employed.
It is common for employers to establish a non-compete clause with a specific employee (during and/or after the termination of employment relationship), but it is even more common for such agreements to be made in a manner that is not in accordance with the law, thus the employee is not obligated to adhere to any non-compete clause.
Below are the most common mistakes which employers make when establishing a non-compete clause:
1. Establishing a Non-Compete Clause with the wrong document
Employers establish a non-compete clause through the Work Regulations or another document that is not the Employment Contract. This is incorrect because the Labour Law explicitly regulates that a non-compete clause can only be established through an employment contract. An exception to this rule applies to directors, members of the supervisory board, representatives, and procurators who, according to the Companies Act, are required to adhere to a non-compete clause.
2. Establishing a Non-Compete Clause for Every Employee
Employers establish a non-compete clause for every employee, even in cases where the legal condition is not met, which is that a non-compete clause can only be agreed upon if the employee, through their work with the employer:
- Can acquire new, particularly important technological knowledge,
- A wide circle of business partners, or
- Access to important business information and secrets.
When establishing a non-compete clause for an individual employee, it must first be determined whether the above legal condition is met.
3. Establishing a Non-Compete Clause for All Types of Work
It is common for employers to copy the article of the Labour Law that regulates the non-compete clause without specifying which types of work the employee is prohibited from performing under the agreed clause.
“The employee must not establish an employment relationship with another employer.”
This is incorrect because the types of work the employee cannot perform for another employer are not specified. Inadequate regulation of the types of work that employees are prohibited from performing for another employer leads to the agreed non-compete clause being considered null and void, and it will not bind the employee in any way.
