Withdrawal from the non-competition clause by the employer in the light of the latest case law of the Constitutional Court of 2021
Withdrawal from the non-competition clause by the employer
Czech law regulates non-competition clauses in employment contracts; these are dealt with in the provisions of § 310 of Act No. 262/2006 Coll. (the “Labour Code”), in particular paragraphs 4 to 6 of the provision. The text of the Labor Code is as follows:
„(4) “The employer may withdraw from a non-competition clause only during the term of the employee’s employment relationship.”
(5) The employee may withdraw from a non-competition clause if the employer has not paid, within 15 days of its maturity, the monetary compensation or its portion; the competitive clause will expire on the first day of the calendar month following receipt of the notice.
(6) The non-competition clause must be concluded in writing; this applies mutatis mutandis to withdrawal from the competition clause and to its renunciation."
The general principles of contractual relationships and the regulation of the obligation of law in the Czech Civil Code, as well as the principles of Czech labor law, especially the understanding of the employee as the weaker party in the relevant employment relationship, which is to enjoy increased legal protection apply to the interpretation of the Czech Labor Code likewise. While the text of the Labor Code imposes an obligation on the employer to withdraw from the negotiated non-competition clause only in the sense that the withdrawal must be in writing and must be carried out during the duration of the employment relationship, the decision-making practice of the Supreme Court of the Czech Republic, described below, in the decisions No. 21 Cdo 4986/2010 a No. 21 Cdo 4394/2010 goes beyond this linguistic interpretation and implicates the valid withdrawal from the employer by the fulfillment of other requirements.
The merits of the cases resolved by the aforesaid decisions are quite specific and therefore a question arises as to how the provision of Section 310 of the Czech Labour Code should be interpreted and whether any of the conclusions set out in the aforesaid decisions are of a general nature which can be applied to any other case of withdrawal from the non-competition clause, even in the case where the employment contract clearly provides that the employer may withdraw from the competition clause for any reason or without giving any reason.
Decision-making practice of the Czech Supreme Court
The Supreme Court of the Czech Republic dealt with the issue of the interpretation of article 310 of the Labour Code and withdrawal from the non-competition clause in two cases.
Judgment of the Supreme Court of the Czech Republic issued under Ref. No. 21 Cdo 4394/2010 from 28th March 2012 based on the following merits:
- on 31 May 2004, an oral agreement on termination of employment was concluded; the employment was to be terminated on 30 June 2004,
- on 30 June 2004, the "document" on "termination of employment" was signed with termination date of 30 June 2004, but the employer added that the employment terminates on 2.7.2004,
- on 2 July 2004, the employer unilaterally announced that it "abolished the prohibition resulting from the non-competition clause".
The Supreme Court of the Czech Republic therefore proceeded on the basis of the fact that the employer notified the employee of her withdrawal from the competition clause after more than one month from the moment when the parties to the employment relationship agreed orally to terminate the employment relationship and de facto even after it ended.
According to a written agreement between the employer and the employee, the employer was additionally "entitled to shorten the duration of the prohibition unilaterally or to abolish it provided she notified the employee of this fact at the latest on the day of the employment relationship would end." Written withdrawal from the non-competition clause had to be in that case delivered no later than 30 June 2004 or 31 May 2004 respectively, if this contractual provision would be interpreted broadly so that the communication should go along with the conclusion of the oral agreement on 31 May 2004, when the termination of the relationship was agreed.
In the case in question, the abolishment of the non-competition clause was dated clearly to the detriment of the employee in the sense that, in the meantime between the oral agreement on termination of employment and the withdrawal from the competition clause, the employee was limited by the employer in finding a new job, particularly by the legitimate expectation that she can not apply for a job as defined in the non-competition clause and that she will be compensated for this restriction in an agreed manner by the employer. For this reason, the Supreme Court of the Czech Republic also stated in its decision the following:
"An employee whose employment relationship with a former employer is terminated usually selects his or her occupation, business or other gainful activity before the termination; if the employee agreed upon the non-competition clause with the employer, the employee must also consider that he/she is restricted by the non-competition clause in the choice of his/her other gainful activity, and that his/her obligation is "compensated" by the employer by providing him/her with the corresponding "economic benefit" ... ".
In our opinion, if in the above-mentioned case, the employee had learned about the withdrawal from the non-competition clause by the employer during the duration of the employment relationship and thus she would not feel obliged by the non-competition clause when choosing her next profession, there would be no disadvantage to the employee in that sense. However, in this decision, the Supreme Court of the Czech Republic, in addition to the literal version of the Czech Labor Code, states that withdrawal from the non-competition clause by the employer is only possible if the reasons for such withdrawal have been agreed in advance. In the light of the foregoing, the general binding nature of such a legal opinion can be regarded at least as disputable as it departs directly from the literal version of the Czech Labor Code and, to a certain extent, it can be perceived as eroding the constitutionally protected principle of legal certainty and the imposition of obligations only by law.
Judgment of the Supreme Court of the Czech Republic issued under Ref. No. 21 Cdo 4986/2010 from 20th September was based on the following merits:
- on 28 March 2008, the employee issued the termination of the employment; the employment was to be terminated on 31 May 2008,
- the employment contract did not contain any clauses on the possibility of terminating the non-competition clause,
- the employer, on receipt of the notice on 27 May 2008, allegedly delivered to the employee a withdrawal from the non-competition clause (this is a controversial case because there is no evidence that the employee was served) and the reason for the withdrawal was not given.
In this case, the Supreme Court of the Czech Republic proceeded from the factual situation, when not only the employment contract did not regulate the possibility to terminate the non-competition clause, but it was not proved that the withdrawal was delivered to the employee. The resignation was re-served only after the termination notice has been given and just before the expiration of the notice period. In addition, the withdrawal did not contain a definition of the reason why the non-competition clause had been withdrawn from.
The Supreme Court of the Czech Republic, in its decision, inter alia, disagreed with such an interpretation of Art. 310 par. 4 of the Labour Code, which would entitle the employer to withdraw from the non-competition clause for any reason or without giving reasons arguing that the indication of the reason for withdrawal is an immanent part of any unilateral withdrawal from a legal act. It is understandable and clear from the merits of the judgment why the Supreme Court of the Czech Republic inclined towards the employee.
Nevertheless, as in the above-mentioned judgment Ref. No. 21 Cdo 4986/2010 from 28.3.2012, we can not agree with the general binding legal opinion that has been drawn up on the basis of such factually specific cases and which, if applied to a standard situation, would result in the imposition of disproportionate restrictions on the employer and questioning of the employer's right to withdraw from the non-competition clause, which, without further restriction, is contained in the provision of Art. 310 par. 4 of the Labour Code.
Withdrawal in case of an agreement with the employee
In our opinion, the aforementioned judgments of the Supreme Court of the Czech Republic need to be interpreted in the light of the facts of the cases in question and any other general conditions which should be abided with can not be inferred from them without being explicitly stated in a law. Article 4 of the Charter of Fundamental Rights and Freedoms states that "Obligations may be imposed only on the basis of the law and within its limits, and only while maintaining of fundamental rights and freedoms." Therefore, in our opinion, it is not possible to generalize the conclusions in specific cases that were guided by the intent of protecting the employee as a weaker party with respect to violation of contractual and statutory provisions by the employer and thus to impose additional obligations on employers in excess of Art. 310 of the Czech Labour Code.
The merits out above are substantially different from those which would have arisen if the employer and the employee jointly agreed in the employment contract on the possibility of unilateral withdrawal from the non-competition clause for any reason or for no reason. In such a case, the employee would have been aware of the employer's right from the outset and would have explicitly agreed to it on signing the employment contract.
The questioning of the validity of such a provision would call into question the negotiated contractual arrangements and obligations. The condition set by the Supreme Court of the Czech Republic in its decision-making practice over and above the conditions contained in the Labour Code in the sense that the employer and the employee have to negotiate in writing the possibility and reasons for withdrawal from the non-competition clause in the employment contract would, in our opinion, be fulfilled.
Of course, the statutory condition is that, if the withdrawal occurs on the part of the employer, it is only necessary to do so for the duration of the employment relationship, otherwise there would be a violation of the law, and the aforementioned argumentation of the Supreme Court of the Czech republic could be applied in the sense that the employee would be limited while choosing another job.
Withdrawal from the non-competition clause by the employer in the light of the latest case law of the Constitutional Court of 2021
The above-mentioned conclusions, which are different from the previous conclusions of the Supreme Court of the Czech Republic, have also been reached in the current case law of the Constitutional Court of the Czech Republic, which has been in its ruling of 21 May 2021 sp.zn. II. ÚS 1889/19rejected as inadmissible “judicial shaping of the law”. The Constitutional Court found the judicial shaping of the law by the general courts in the above-mentioned cases to be constitutionally incompliant, as they did not present particularly convincing arguments in support of their opinions: ""Such judicial shaping of the law, as the general courts did in the present case, can be considered constitutionally compliant only if it is required by the correctly defined purpose and meaning of the legislation in question, its systematic coherence or one of the constitutional principles. "
In this ruling, the Constitutional Court dealt with a case where the employer and employee had expressly agreed in the non-competition clause that the employer could withdraw from non-competition clause without stating any reason. The Constitutional Court claimed that the law does not prohibit to agree the right of the employer to withdraw from the non-competition clause without stating a reason and, in our opinion, this possibility is not theoretically excluded even if such a reason for withdrawal is not expressly agreed. However, in the case of failure to expressly agree on such a reason when concluding the non-competition clause, it is clear that the employer's position in the event of withdrawal from the non-competition clause is considerably more complex and the assessment of such withdrawal as an abuse of law or arbitrariness more likely. In both cases, however, it is necessary that any abuse of law or arbitrariness on the side of the employer will be established and proven in any legal proceedings, not automatically presumed. In particular, the courts are obliged to take into account when the employer's withdrawal took place or the interval between the withdrawal from the non-competition clause and the termination of the employment relationship. It is therefore a question of the general application of the principles of good manners and the protection of the employee as the weaker party in employment relations, with which the Constitutional Court agrees.
Thus, the Constitutional Court finds the judicial shaping of the law by the general courts in this case to be constitutionally incompliant, as they did not present particularly convincing arguments in support of their views. " Such judicial shaping of the law, as was undertaken by the general courts in the present case, can be considered constitutionally complaint only if the correctly defined purpose and meaning of the legislation in question, its systematic coherence or one of the constitutional principles so require."
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Based on the above assessment, especially given the considerable specificity of the facts of the cases dealt with by the Supreme Court of the Czech Republic and subsequently by the Constitutional Court, and as a consequence of the deviation from the language version of the Labour Code, we consider that an employer's withdrawal from a non-competition clause in a case where the withdrawal from the non-competition clause was agreed in advance in writing with the employee and the employee would not be limited in any way in his further choice of his job, would be validly executed.
However, please note that Czech courts generally tends to rule in favour of employees as the "weaker party" and that courts may impose stricter conditions on employers' withdrawal from non-competition clauses, even if they do not arise from the law. In particular, they will check more carefully the fulfilment of the conditions contained in the Constitutional Court's ruling of 21 May 2021, Case No. II ÚS 1889/19, describing in detail the conditions for withdrawal from the non-competition clause. We hope that the approach of the Czech courts to assessing employers' withdrawal from non-competition clauses will change as a result of the current Constitutional Court ruling and that the interpretation of the Labour Code will not restrict employers in an excessive way in concluding of non-competition clauses.
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