In its Decision File No. II. ÚS 3101/18, dated 2 May 2019, the Constitutional Court ruled that the entitlement to be paid a contractual penalty by a former employee who signed a non-compete clause results from the breach of duty on the part of the former employee. The duration of new employment or the issue of whether the employee actually uses (or misuses) any confidential information is not of the essence.

The Constitutional Court addressed the question of whether a breach of a non-compete clause may be deemed marginal in circumstances in which the new employment only lasts for a short time or if the employee refrains from using (misusing) confidential information for the benefit of the new employer or the employee’s own business. If yes, such a breach could have been deemed marginal, thus releasing the employee from the duty to pay the contractual penalty (as previously decided by the Supreme Court).

The Constitutional Court held that the entitlement to a contractual penalty included in a non-compete clause materializes exclusively based upon the breach of duty itself, i.e., on the breach of duty of the former employee to refrain from any economic activity identical to the business of the previous employer or which would compete therewith. The duration of such new employment or the issue of whether the employee does or does not actually use (or misuse) any confidential information to benefit the new employer or the employee’s new business has no importance in that respect.

The opinion of the Constitutional Court is that the desired equilibrium in the mutual relationship can be best achieved solely through the original contractual provisions as specified in the non-compete clause (without interference from courts as to the sum of the penalty). The Court’s reasoning was that this approach protects the right to conduct business but also properly reflects the freedom of choice of employment.

The Constitutional Court further stated that the opinion expressed by the Supreme Court, which stressed the marginal scope of the breach of contractual duty deriving from the non-compete clause, would cast serious doubts upon the application of non-compete clauses with employers and lose the certainty of whether possible breaches by employees would or would not be held marginal, resulting in the non-compete clauses losing their practical usefulness for employers altogether.

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